A group of 23 state attorneys general are urging the U.S. Congress to implement more controls over the government loan program meant to aid small business during the coronavirus shutdown, as many benefactors of the program have so far been major companies.
“The Paycheck Protection Program was created to help small businesses affected by the coronavirus, including the many women- and minority-owned and operated businesses, but, instead, much of this money has gone to large corporations,” New York AG Letitia James said in a Wednesday evening statement. James is leading the effort to implement changes to the PPP and its distribution along with AG’s from mainly Democratic states of California, Connecticut, Colorado, Delaware, Hawaii, Iowa, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, Nevada, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia.
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In a separate letter to Congress, the AGs detailed a number of concerning facts about the disbursement of the PPP, which launched in March with $350 billion in funds that was quickly tapped. A second round of $310 billion came toward the end of April, but like the first round, small businesses have been dogged with issues not only getting approved, but in accessing the online application portal at all.
“The program has suffered from a notable lack of transparency, technical savvy, and functionality,” the AGs told Congress.
Compounding the frustrations of many small businesses have been reports in recent weeks that operations like The Los Angeles Lakers received a $4.6 million PPP loan, public restaurant chain Shake Shack received a $10 million loan and also public Ashford Hospitality received a $13 million loans. Companies have to apply for a PPP loan. Only when it was made public did these large companies and and many others decide to give the funds back. According to a Wednesday report in the Chicago Tribune, so far 42 public companies have said they will return federal funds they applied for and received, totaling roughly $337 million.
The AGs had even more dramatic numbers. They wrote that 45 percent of the first round of funding for the PPP program, or $152.4 billion, was distributed in amounts over $1 million “suggesting that larger, more well-connected companies may have been better able to navigate the application process.” The amount of a PPP loan is generally based on the size of a company and the number of employees it has, and loan amounts will be forgiven so long as a businesses enacts no layoffs or pay cuts.
They added that a survey of 1,600 small business owners conducted after the first round of funding (which ran out in 13 days) found that, although 60 percent submitted applications for a PPP loan, only 5 percent received funding.
“Even the second round of funding looks likely to leave many small businesses underserved,” the AGs added. “The chasm between those who need this money and those able to successfully secure funding undermines the program’s stated purpose of providing emergency relief to all small businesses adversely impacted by the COVID-19 crisis.”
In an effort to reduce the gap between large companies apparently having an easier time getting approved for government funding, the AGs suggested a number of changes to the PPP program. The attorneys said any public company could be “prohibited” outright from applying for PPP funding. A recently updated Small Business Administration guideline outlining the size of companies that should apply “doesn’t go far enough,” they said.
The AGs also said to ensure fair access to funding, Congress should eliminate any possibility that banks processing the loans are favoring existing customers with more funds, something that a number of small businesses have complained of when trying to get PPP funding. Only certain banks are participating in the PPP lending program.
“The businesses in the greatest need of assistance are often the smallest and least sophisticated – those which are unlikely to have lawyers or accountants on retainer or to have longstanding, deep relationships with a particular lender,” the AGs wrote. “Accordingly, PPP participants should be directed to process loans for every small business that meets program requirements, not just certain types of preferred preexisting customers.”
In addition, the AGs said Congress should explicitly allocate a portion of any future PPP funding to minority-owned small business; that the SBA should be required to improve its direct communication with small businesses while they’re applying for a PPP loan; that the program overall should be more transparent to the public, so taxpayers can see where and how their money is being given. Although the Trump White House has suggested that a list of PPP loan recipients will be made public, there is no timeline for it.
“In these grim and uncertain economic times, the PPP is a vitally important resource,” the AGs added. “We understand that it was necessary to implement the PPP as quickly as possible, which led to predictable stumbles and delays, given the size of the program. But we can now learn from these mistakes and, as the program moves forward, we can apply those lessons.”
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