“We’ve seen too many examples of large companies claiming millions while most of our mom and pop business owners are left out in the cold,” Frank Knapp Jr., co-chairman of the Businesses for Responsible Tax Reform coalition and CEO of the South Carolina Small Business Chamber of Commerce, said in a statement on Tuesday. “That falls on the administration, which failed to write rules around the program to ensure real small businesses had a shot at the loans they need to survive this crisis.”
U.S. News & World Report
April 22, 2020
Complaints of loopholes and favoritism in stimulus assistance for larger businesses have helped undercut confidence in programs designed to restore economic stability.
By Andrew Soergel, Senior Writer, Economics
The Senate overwhelmingly approved a fourth tranche of emergency aid to prop up the economy in the midst of a coronavirus pandemic that has sent unemployment soaring and forced non-essential businesses across the country to shutter their doors.
But many small business owners are “furious” about the way larger companies and chains have utilized an initiative called the Paycheck Protection Program designed to lend money to companies trying to keep their workers on payroll – and the way major banks who distribute the loans have allegedly prioritized bigger businesses – according to Amanda Ballantyne, the executive director of the Main Street Alliance small business coalition.
“The serious design flaws of the PPP will not be solved by throwing more money at these programs,” Ballantyne said in a statement on Tuesday.
Skepticism over the structure of the Paycheck Protection Program adds to the growing chorus of frustration business owners, consumers and state officials have expressed in recent weeks as Congress and President Donald Trump’s administration scramble in their response to the country’s most significant economic upheaval since the Great Depression.
Stimulus checks meant to keep Americans afloat have been delayed and unevenly distributed. State unemployment offices inundated with jobless claims have been slow to distribute unemployment insurance. Banks and lenders were initially unclear of the details associated with the Paycheck Protection Program, warning small business clients that they may not be able to help them. Programs designed to restore order to the economy and comfort affected Americans have in many cases done the opposite, generating confusion throughout the business community and eroding trust in government support programs and elected officials.
The latest round of stimulus awaiting approval from the House will funnel an additional $320 billion into the paycheck program that was exhausted less than two weeks after opening under a $2.2 trillion relief package. In this latest round of funding, $60 billion will be set aside for small businesses without existing relationships with banks.
But as it is currently structured, the new legislation falls well short of what small business organizations across the country were hoping to see. Many small business owners have complained that banks have prioritized large loans to larger companies, potentially allowing the banks to collect more substantial processing fees.
It is also alleged that some banks did not process loan requests on a first-come, first-served basis. Multiple lawsuits have been filed by small business owners in recent days against institutions such as JPMorgan Chase, Wells Fargo and Bank of America.
“While providing more funds to these assistance programs is necessary, we’ve already seen that they do not provide the quick relief that would help small businesses now and in the future,” John Arensmeyer, founder and CEO of Small Business Majority, said in a statement on Tuesday, saying the program “fails to address a critical carveout that allowed publicly-traded companies, large restaurant groups, and hedge funds to apply for and deplete the PPP fund.”
“When PPP is depleted once again in a matter of days, we hope Congress will finally be willing to come to the table and get serious about a direct grant program for small businesses,” he said.
Large chain establishments such as Shake Shack, Potbelly and Ruth’s Hospitality Group have come under fire in recent days for collectively receiving approval for tens of millions of dollars in Paycheck Protection Program loans that some small business advocates argue were meant for smaller independent establishments rather than national chains. Shake Shack has since announced plans to return the $10 million it received through the paycheck program.
“We’ve seen too many examples of large companies claiming millions while most of our mom and pop business owners are left out in the cold,” Frank Knapp Jr., co-chairman of the Businesses for Responsible Tax Reform coalition and CEO of the South Carolina Small Business Chamber of Commerce, said in a statement on Tuesday. “That falls on the administration, which failed to write rules around the program to ensure real small businesses had a shot at the loans they need to survive this crisis.”
Per the terms of the program, businesses that receive the loans – which are backstopped by the Small Business Administration – may see some or all of their obligations forgiven if they put the money toward keeping employees on staff. But some groups have also argued that these terms are too narrowly tailored, saying businesses may be better-served using the funds to pay rent or restructure business models.
“By providing relatively small borrowing amounts and strictly linking relief to payroll expenses, PPP as it is currently structured is of limited use to businesses struggling to meet a wide range of fixed costs over an extended period,” a group of industry groups including the U.S. Travel Association, the National Restaurant Association and the National Small Business Association, among others, said in a letter written to congressional leaders on Tuesday.
The industry groups warned that “the businesses most in need of emergency relief will face the biggest hurdles in putting PPP to its intended use unless structural improvements are made soon,” calling for an increase to borrowing limits and expanded expense coverage to include rent, utilities and inventory.
Even the U.S. Chamber of Commerce – a group that represents companies large and small and that has had previous success lobbying the Trump administration for pro-business initiatives – has cast doubt on the effectiveness of the Paycheck Protection Program as it is currently structured.
In a statement published on Tuesday, Neil Bradley, the Chamber’s executive vice president and chief policy officer, applauded the Senate’s passage of the new stimulus bill but warned that lawmakers “must next turn to making the necessary technical corrections to programs created in the CARES Act to ensure that all employers – especially all small employers – have access to critical support during this time.”
The roughly $350 billion initially allocated to the Paycheck Protection Program have been depleted for nearly a week. Democratic lawmakers had been advocating for setting aside more funds in this latest stimulus bill for minority- and women-owned businesses. But Republicans argued the economy would be better-served by quickly replenishing the program’s funds without introducing further complexities.
The Businesses for Responsible Tax Reform association on Tuesday published the results of a survey of more than 500 small businesses. That report found that 44% of respondents had to close their businesses as a result of the coronavirus outbreak. More than two-thirds, 68%, had applied for a Paycheck Protection Program loan, but only 28% were approved. And only 15% said they’d actually received their loan.
Virtually all business sectors have been hit by the coronavirus outbreak, making the current situation far different from a typical recession in which the government can more specifically tailor support. During the Great Recession, for example, banks and automotive companies received targeted aid.
But the government doesn’t have the luxury of targeting support when the vast majority of the economy has essentially been frozen. After granting airline bailouts and emergency funds to Boeing – and after Trump on Tuesday suggested he would direct some sort of stimulus toward domestic oil producers – small business owners have criticized the administration for seemingly prioritizing some industries over others when virtually all are suffering.
“In March, the food and beverage industry represented about 60% of the total unemployment claims. To date, less than 9% of the loans approved have gone to the hospitality industry, and even fewer to independent restaurants,” the Independent Restaurant Coalition said in a statement on Tuesday. “The last stimulus bill included a special $25 billion carve-out to keep 750,000 airline employees working. Why not make a few changes to help independent restaurants, who employ 15 times more people?”