The Payroll Protection Program (PPP), a massive federal aid program meant to help small businesses stay afloat and sustain payrolls during the antivirus shutdowns and quarantines, has attracted considerable criticism, including accusations of corruption. Lawyers have filed suits, congressional representatives have complained, and journalists have highlighted abuses. While abuses have likely occurred, PPP aid nonetheless seems to have flowed quickly to the small businesses that it was intended to help.
Launched in early April as part of the $2 trillion CARES Act and intended to help firms with 500 or fewer employees, the PPP was originally funded at $342 billion. The money included aid for larger restaurant and hotel chains, presumably because they have been especially hard-hit by the coronavirus emergency and because they employ millions of people. Placed under the auspices of the Small Business Administration (SBA), the PPP offered aid through loans on attractive terms that promised forgiveness if the borrowed funds were used predominantly to support payrolls or rehire workers laid off during the emergency.
No program this large goes strictly according to plan, in Washington or anywhere else. The demand for loans was so swift that, within days, the SBA was complaining that its systems were swamped. To relieve the strain, Washington made arrangements to use approved banks to review applications and administer the loans; soon, accusations emerged that the banks were collecting exorbitant fees. A California law firm has already filed suit against 5,000 banks to recoup what it identifies as $3.85 billion in unfairly collected fees. Certain larger banks have been accused of using their Washington connections to control the lion’s share of the PPP funds, and favoring their established and larger customers at the expense of smaller, less well-connected companies. Some of these borrowers, embarrassed by the disclosures, have returned the money rather than face the adverse publicity.
Reports of abuse gained enough attention that Congress attached safeguards to the program, adding another $320 billion to its budget later in April. To prevent large banks from monopolizing most of the available funds, this additional legislation reserved some $60 billion, just under 10 percent of the combined total, for smaller regional banks that presumably are more likely to lend to smaller, less well-connected businesses. The safeguards further limit to $60 billion the amount of such lending any single bank can do. The banks defended their practices, claiming that they had favored existing clients to shorten the application process and to reduce the risk of lending to ineligible borrowers. Washington acknowledged these points and offered reassurances that it would not prosecute if the banks proceeded in good faith.
It’s doubtful, though, that these safeguards can answer all the concerns that surround this program. Apart from the fact that the federal government’s reassurances to the lenders could invite still more fraud by excusing them from the need for due diligence, the public already suspects all these players—the banks, the connected borrowers, and the Washington establishment—of collusion and self-dealing from their behavior during the 2008–2009 financial crisis and earlier. On that basis alone, a greater level of scrutiny would not be amiss, whether of the PPP or any other program. But for all the anecdotal evidence that has emerged, and justifiable suspicions, the available data suggest that PPP money has gone mostly to its targeted beneficiaries—small businesses.
The entire initial $342 billion PPP allocation was lent out in just 13 days. Whether that’s to the credit of the SBA or the bank administrators, or simply a reflection of the great need among businesses in this emergency, it is an impressive accomplishment—especially considering how little of the allocated funding in the rest of the CARES legislation has made its way to intended beneficiaries, including individuals, larger businesses, states, cities, and hospitals. Even with the complications imposed by the new safeguards, the additional PPP funding seems to be moving along quickly, too.
Average loan sizes, and the number of loans, also suggest that most of the money has gone to small businesses. The initial $342 billion was disbursed to some 1.7 million borrowers, with an average loan value of $206,000. Even the biggest bank, JP Morgan Chase, reported that it lent some $14 billion during the opening weeks of the program to some 27,307 borrowers for an average amount of $515,304. These dollar amounts may seem large, but they are typical of loans to small businesses, not large corporations. The average loan size would barely meet the monthly payroll needs of a company of 60 employees, even if the average worker earned only $15 an hour. These figures suggest that many very small businesses have participated in the PPP. More recently, Washington has further strengthened the program’s focus on small businesses by limiting the amount of each loan to $150,000.
Media accusations that mega-corporations have taken unfair advantage of the program may stem from a misperception that all publicly traded companies are large. But firms incorporate for any number of reasons, some entirely aspirational. They are not universally large companies—a fact borne out by the amounts that they borrowed. The Treasury provides no data on this, but one estimate drawn from public disclosures suggests that some 220 public companies secured $870 million of the PPP allocation. Wall Street analyses put the figure lower, at $243 million to publicly traded companies. Even the larger estimate, amounting only to 0.2 percent of the total funds available, hardly justifies much concern, averaging only $4 million to each borrower—bigger than the averages quoted above but not an amount that would mean much to a large firm.
To be sure, some small companies will fail to get any PPP funds. But not even the most optimistic policymakers could have expected to help them all. On the eve of the Covid-19 crisis, the United States was home to 30 million small businesses. Even the massive $600-plus billion of the PPP could only help a small percentage of them. A perfectly equitable allocation would have offered a mere $20,000 to each, hardly enough to make a difference to any firm with a payroll to protect. Fraud and conniving deserve exposure and punishment, but no evidence exists that these problems have been more than incidental. On the contrary, the figures suggest that, up to now, the PPP effort is meeting its stated objectives—and certainly more effectively than most aid programs from Washington do.
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