Where’s My Money?: Loans Meant for Small Businesses During COVID-19 Funneled to Large Companies
The Paycheck Protection Program (PPP) under the CARES Act was supposed to help small businesses during the uncertain era we are living in today. It has indeed helped numerous borrowers, many of which needed the money to stay afloat.
But many of those borrowers were not in need of such funds. The PPP was managed by the federal Small Business Administration (SBA) for the sole purpose of helping small businesses pay their workers, their rent, their utilities, and other expenses without running the risk of going under. Unfortunately, the PPP funds went to some borrowers who were far from facing some of the risks that these small businesses were.
Millions of dollars that could have saved honest small businesses were instead distributed to large companies, which benefited their stockholders and grew their already large coffers as a result. Another corporate bailout at the expense of regular people just trying to get by.
Let’s unpack the PPP to see where the funds have gone, how they have been spent, and who was eligible to apply to this program. Most importantly, how did these large companies, which employ far more people than any small business, manage to secure funding from a provision in the CARES Act meant exclusively for small businesses?
According to the Small Business Administration, “Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 employees, or that meets the SBA industry size standard if more than 500” can apply for the PPP. Additionally, if you are a sole proprietor, self-employed, or an independent contractor, you are eligible to apply.
If accepted for the loan, the funds must be used for payroll costs (employee salaries), mortgages, rent, and utilities. At least 75% of that money must be applied to payroll costs.
Despite these requirements, many companies that had far more than 500 employees and deviated from the rules mentioned earlier still secured funding. Potbelly Sandwich Shop received the maximum $10 million contribution from the SBA. Other small businesses received far less, and many received nothing at all because the money that Congress allocated had run out so quickly.
Shake Shack, worth $1.6 billion, granted a maximum $10 million loan. David Molenberg, the owner of WowCater from California, did not. Molenberg’s catering service employs roughly a dozen delivery drivers. His business was well within the confines of eligibility under the PPP. He applied once and mysteriously got rejected. He applied again, this time with success...if you could call it that.
To keep his dozen employees well paid, the PPP gave him a grand total of $1,200.
Yes, only $1,200.
Anybody with common sense knows that is nowhere near the amount necessary to keep his business going strong.
Yet, companies managed to exploit the hastily written CARES Act to their own benefit. Furthermore, that money which wasn’t supposed to be theirs in the first place will not even be given back. The PPP stipulates that if the organization utilizing the loan manages to retain their workforce and operate at an adequate level, the loan would be forgiven, and not one cent would have to be paid back.
Free money. For corporations, not small businesses.
The poor attempt at bipartisanship which led to poorly written and vague legislation allowed this travesty to happen. And it’s not going unnoticed. Kyle Herrig, president of the Accountable.US watchdog group, stated, “Paycheck protection grants are supposed to support workers and their families during this economic crisis, not line the pockets of corporate executives.” Nobody could have said it better.
In a time of uncertainty and strife for every American, it is imperative to help those who are most at risk, not continue to embellish and enrich those that already have their own safety nets. In all, more than $243 million of the $349 billion PPP money was diverted to large companies instead of small businesses like those of Mr. Molenberg and thousands of others. In fact, at least 75 of those companies are publicly traded on the market.
Who reaped the benefits? CEOs and stockholders. Average working-class Americans? Barely enough to scrape by, in some cases.
Given the PPP’s short-lived, and fairly unsuccessful attempt at providing regular Americans with security, Congress is at it again. Hopefully, they will be putting forth a better bill after the failures of the last one, but that may be a tall order. This Thursday, a new PPP bill overwhelmingly passed the US House of Representatives and is on its way to the Senate.
This time, it will allocate $660 billion to small businesses of 500 workers or less. In addition, it changes the payroll requirement to 60% of the loan instead of 75%, extends loan coverage from eight to 24 weeks, and extends the payback time from two years to five years.
We can only wait and see if this new bill will be effective enough to cover as many small businesses as possible without favoring companies that are far better off.