When Congress passed the CARES Act, it created the Paycheck Protection Program (PPP) as a lifeline for small businesses struggling to survive the historic COVID-19 public health and economic crisis. For all the Trump administration’s talk of the program’s success, in reality, it failed in many ways.
How The PPP Has Failed
Here is what we know:
- The Trump administration poorly designed and executed the program. No amount of finger pointing can change that.
- At the outset of the program, big corporations and the well-connected were able to exploit it while mom-and-pop shops closed their doors — sometimes permanently. Businesses that needed access to credit the most, especially those in communities of color, were shut out of the PPP program because of the Trump administration’s poor design.
- $132 billion remaining in PPP coffers is not a sign of its success, especially given the fact that as many as 110,000 small businesses closed down. In fact, this is a sign of the Trump administration’s failure from the beginning.
- The program is rife with fraud. An investigation from the Government Accountability Office (GAO) said, “reliance on applicant self-certifications can leave a program vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities.” The Small Business Administration’s inspector general is also investigating potential fraud of duplicate loans.
- The data is unreliable. The Trump administration is claiming the PPP supported 51 million jobs, but once we scratch below the surface, we find this number is likely bogus. One report said “the job numbers in one out of every five PPP loans” needs to be called into question.
There is broad agreement that our small businesses need help in these challenging times — and as it stands, the PPP ends on August 8. No one believes small businesses are out of the woods yet.
As elected leaders begin negotiating another round of relief, they need to learn from the Trump administration’s mistakes. Any program must be transparent, data-driven, and aligned with the needs of the communities that need help the most. Taxpayers deserve to know where their money went and what process the administration is using to track all the money dispensed and fix the program’s discrepancies.
Because of the Trump administration’s poor design and implementation of the PPP, big corporations and the well-connected exploited the program from the start.
The Poor Design And Implementation Of The PPP
The purpose of the Paycheck Protection Program was to provide a lifeline to small mom-and-pop businesses to keep their workers on payroll. That is not what happened. When the program first started processing PPP applications, banks and lending institutions prioritized large and publicly-traded corporations and those with which they had pre-existing relationships — leaving small businesses, especially those owned by people of color, at a distinct disadvantage. These banks are now facing a lawsuit over their actions.
Some examples of companies that received PPP loans: Forty lobbyists with ties to President Trump helped secure $10 billion in coronavirus aid for their clients, and large corporations with ties to President Trump, Kanye West and other rich celebrities, payday lenders, and fossil fuel companies, received assistance through the program as well. Since civil or criminal legal proceedings did not automatically disqualify businesses from receiving PPP loans, “some bad actors who should not have gotten the money put their hands in the pot,” according to former Small Business Administration (SBA) Administrator Karen Mills — including a company accused of running a Ponzi scheme and a company that defrauded students on their loans.
Because of the Trump administration’s poor design and implementation of the PPP, businesses who needed help the most, particularly in communities of color, were shut out.
Small Mom-And-Pop Shops Have Shut Down
At the same time the well-connected had access to loans, small mom-and-pop shops have shut down. An estimated 66,000 to 110,000 small businesses have closed permanently in the past several months. The PPP still had $132 billion available as of July 10, but how does that help a small business that is no longer in business?
From the start, an overwhelming number of Black-owned businesses were shut because of the way the Trump administration structured the PPP. In his testimony at a House Financial Services Subcommittee hearing, the CEO of the U.S. Black Chambers, Inc. said only 143 Black-owned firms received a PPP loan over $150,000, the amount over which the Trump administration made the data public.
One survey looking at applications in the first part of May found just 12% of Black and Latinx business owners received the SBA relief they had applied for. Research from the University of California-Santa Cruz found 40% of Black-owned businesses are not expected to survive the coronavirus crisis.
Because of the Trump administration’s poor design and implementation of the PPP, the program resulted in fraud.
The Issues With PPP Transparency
Typically, a government program that is doling out half a trillion dollars would include measures to ensure robust oversight and transparency. But despite its promises, the Trump administration designed a program that had little guidance for applicants or lenders. The administration is relying on good faith reporting from applicants and lenders which has not been vetted. There does not appear to be any entity responsible for ensuring data integrity, opening the program up to fraud.
According to the watchdog Government Accountability Office, “reliance on applicant self-certifications can leave a program vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities.” It also found the pace of the Trump administration’s implementation of the PPP “contributed to confusion and questions about the program and raised program integrity concerns.”
For example, in Arizona, “at least one borrower…was identified only with four initials that is not listed in Arizona Corporation Commission records.” In Florida, a former employee of Starboard group said the CEO used $1 million from PPP loans to finance his home in Montana. The U.S. attorney is investigating allegations that the CEO of a tech firm in Massachusetts lied in his PPP application to fraudulently obtain $13 million in PPP loans. And in Texas, a man is being prosecuted for using $1.1 million in PPP loans to buy cryptocurrency and pay personal expenses.
Several companies listed as having received government PPP funding denied receiving any aid — leading not only to questions about the integrity of the data but also on what loans banks are actually collecting lucrative fees.
The SBA’s inspector general has launched an investigation examining why so many small businesses received duplicate loans that could have cost taxpayers upwards of $100 million.
Because of the Trump administration’s poor design and implementation of the PPP, we have poor data to evaluate the program. (Just look at the jobs retained numbers.)
PPP Statistics In Question
The Trump administration claims that the PPP saved 51 million jobs, but further investigation calls into question that statistic.
A Reuters investigation found the Trump administration did not thoroughly vet job retention figures. According to the Chicago Tribune, “more than 550,000 recipients… were listed in the official government data as having retained zero jobs. Nearly 50,000 of those recipients nationally… received loans of more than $150,000.” Bureau of Labor Statistics figures show there were about 5,000 people employed in the soybean farming industry last year, but the Trump administration claimed PPP saved 23,000 soybean farming jobs. A Bloomberg report said there were so many data anomalies that “the job numbers in one out of every five PPP loans” needed to be called into question.
Steve Ellis, president of Taxpayers for Common Sense, and ironically a recipient of the PPP, said, “If a company truly is not retaining any employees, the question is, Why did you get the loan and when will you pay it back?…And it has to be asked of the banks, Why did you approve these loans if it didn’t say how many jobs would be retained?”
The PPP is set to stop accepting new applications on August 8. No one believes that small businesses will recover from the impacts of the coronavirus anytime soon, and new federal relief is desperately needed. Congress is set to debate new relief in the coming weeks. But what should it look like? Here are four key steps.
First, data. There should be enforceable disclosure, transparency and oversight to know how PPP money was spent so we have a better understanding why it failed and how to make taxpayer funds go farther. We need information — not just on companies that received loans, but also how much money they received, and how those businesses fared. This information will be invaluable in helping to ensure that the government is able to run successful programs now and in the future.
Second, a new program must incentivize lending institutions to provide small businesses access to credit, especially in underserved areas and communities of color. The program should also be flexible to meet the specific needs of the small business community.
Third, strict conditions should be put on the fee structure of banks involved in the lending process to prohibit them from making excessive profits off of small business relief. The S&P reported that more than 30 banks could end up making as much from these loan programs in the first half of 2020 as they reported in profits for all of 2019.
And lastly, accountability is imperative. There should be an audit of the PPP, including why there are data discrepancies and what steps are being taken to correct them, if any. Taxpayers deserve to know where their money went.
The COVID-19 crisis has not gone away, and its economic impacts are far from over. Too many small businesses still need help and the government should find real solutions that will meet these ongoing challenges.