The PPP loans which are part of Congress’ $2 trillion CARE Program, have certainly injected much-needed liquidity into the economy and helped keep some jobs during the pandemic. However, there have been a number of problems with the loans and doubts as to if the money is reaching small local businesses who need it the most.
“We are facing an uncertain future. We do not know how long it will take to eradicate coronavirus and return to normal. People and businesses who lost their income during the pandemic need help to survive. Now more than ever, politicians must work together to create a corona aid relief bill to ease the financial suffering of their people,” says Brad Nakase, who is one of the best employment lawyer in California and awarded the prestigious “American Institute of Trial Lawyer’s 2020 Litigator of the Year.”
Many small businesses missed out on loans during the first round of funding, with the second round taking applications from now until the 8th of August, there are doubts whether loans will be given to those who need it the most.
The Small Business Administration released a report showing that in the first round of PPP loans, $349 billion was loaned in the 13-day program. Only five days into the second round, $175 billion has already been loaned, meaning businesses are snapping up the loans. Are enough of the right businesses receiving the money, though? Here are some of the concerns people have with the Paycheck Protection Program.
The average loan size is smaller in the second round
When agreeing on the second round PPP funding, lawmakers wrote a provision that ensured smaller lenders would have more opportunity to be involved. There is an eight hour period where the SBA only allows smaller lenders to access the system, and 30 billion dollars of the second round of PPP loans must be processed by lenders with assets of $10 billion or less.
People are raising the point that smaller lenders tend to make smaller loans. The Small Business Association’s report clearly backs up this point. It shows that larger lenders with over $50 billion in assets gave an average loan of $90,000. The average loan of lenders with less than $1 billion in assets was $58,000. Many believe this is why the average loan of the second round is smaller than the first round. During the first round of PPP loans, the average loan size was $206,000. During the second round, the average loan size was $79,000.
Large loans take a huge piece of the funding pie
There has been some outcry amongst the small businesses that larger companies are getting large chunks of the funding pot designed to help small businesses. As PPP loans are related to payroll expenses, larger loans mean companies with more employees.
During the first round of funding for the Paycheck Protection Program, 25% of the funds were used for loans of $2 million or more. 1.5% of the total loans (or 25,000 loans) took up a quarter of the available funds.
In the first five days of the second round of funding, 16% of PPP loans are over $2 million, and this represents 0.35% of the number of loans.
The SBA has listened to the concerns of businesses and will be auditing any loan applications over $2 million in the hopes that it will reduce application numbers for bigger loans. At the moment, the program limits the maximum loan amount to $10 million. Businesses are calling for the maximum loan amount to be $1 million, so more businesses have access to the money. If Congress decided to do this, it would free up $150 billion to help more businesses.
Writer for Business Insider, Matthew Zeitlin, suggested in an article that the issue is not the businesses taking these loans. By the very nature of the PPP, these companies have a large number of employees, and this money is being used towards keeping them in jobs. However, the issue is that the program is not well-funded, and it was designed to help businesses through a short shutdown, not taking into account flare-ups and restrictions on reopening.
The second round does not have enough funding
As many businesses missed out on the first round of PPP loans, the second round has started off with a bang. $349 billion was loaned to businesses in 13 days during the first round. Already, only five days into the second round, $176 billion has been approved for loan.
Surveys of small businesses have shown that the loans help a little with the financial stress of the pandemic, but are not high enough to make a real difference to business survival. Additionally, a concerning report from the National Federation of Independent Businesses showed that only 20% of surveyed PPP loan recipients had actually received their money.
The people who need it most have not received PPP funding
Economists from the University of Chicago and MIT have studied the PPP loans and their effect on businesses and the economy. However, based on their study, only 15% of PPP loans have gone to industries and regions that are the most affected by the pandemic. At the moment, there is not enough data to know whether the loans help businesses to survive, but the money is not being loaned wisely at the moment.
The data collected does not show if the loans are promoting equal opportunity
As the SBA administers the loans, they have a lot of data about the types and sizes of companies, and how much money is going where. They have released their data in the name of transparency; however, the data is not broken down to show if diversity is being prioritized.
At the moment, the data is not categorized by gender or race of the business owner. Politicians and small business groups have requested that the information be made available as they are concerned that women-owned businesses and black-owned businesses are not receiving the funds they should. It is also important to ensure that these businesses are receiving the same average loan amount as other businesses.
Ideally, this information would have been made available ahead of the second round so the policy could be updated accordingly, and money allocated for that specific purpose. However, more data is needed to see the full picture of the PPP loans and how they are helping American businesses.