An Associated Press investigation has found that many companies with thousands of employees, prior governmental penalties, and even ones that were at risk pre-coronavirus downturn have received millions of dollars from The Paycheck Protection Program.
Originally, the PPP was intended for smaller businesses, defined in this instance as having less than 500 employees. The fund started at $349 billion, with primary intent to keep employees on the payroll at small businesses that would not ordinarily have access to capital.
Big company money grab: The AP found that at least 94 companies that have acknowledged receiving aid are publicly traded companies, some with market values in excess of $100 million. Around a quarter of these 94 companies had been issuing warnings to investors pre-pandemic that their viability in the market was not certain, all the while the economy was business as usual at this point. The AP sorted through thousands of regulatory files to identify these companies and in their findings, and found these companies and subsidiaries had received a reported $365 million in low interest loan dollars, on the backs of the taxpayers.
Of the loans reviewed by the AP, nine of them were for the $10 million maximum. Including a software company in California that had been the target of a Securities and Exchange Commission investigation in the closing months of last year over accounting errors. The AP has also identified companies with foreign owners and some that may be subject to removal from the U.S. stock exchange. For example, Wave Life Sciences USA Inc. located in the Boston area developing pharmaceuticals with its parent company based in Singapore receiving a $7.2 million loan – despite the company having overall net losses over $100 million, each year, for the last three fiscal years.
How some of this happened: The Paycheck Protection Program launched on April 3rd had the criteria of eligibility expanded allowing business with more than 500 employees to qualify if they met size standards relative to their industries. In other instances, the 500-employee cap was only applied on a per location basis.
This allowed restaurant chains with thousands of employees such as Potbelly, Ruth’s Chris Steak House, and Taco Cabana to qualify and receive the $10 million maximum. The AP also found that some of the companies that received loans had ample cash on hand to survive the downturn. Some were also identified by the AP based on public records with prior investigations resulting in penalties being paid in resolution.
What the SBA is saying: The U.S. Small Business Administration has reported that the average loan amount was $206,000, while 4,400 of approved loans were in excess of $5 million. These loans will be forgiven by the SBA if companies meet the outlined benchmarks, primarily keeping workers on their payroll for 8 weeks. There were 1.6 million approved loans prior to the program’s funding being depleted, so the listed recipients the AP has identified is only the tip of the iceberg. So far, only the AP has offered the only public account of beneficiaries of the PPP.
The AP contacted an SBA representative by email to respond to their report, in reply they received a list with bullet points including “loans cited by recent media reports going to large companies comprise less than 10% of the loans made.” The Treasury Secretary, Steven Mnuchin has said ““The intent of this money was not for big public companies that had access to capital.” The Treasury Department has also released written material stating that 74% of the loans were for less than $150,000.
Congress to okay more PPP funding: PPP funds will likely be replenished today with another $310 billon upon passage in the House. There is also bipartisan support for better oversight and transparency for dispersion of these funds to help better prioritize small businesses around the nation.
How much do small businesses really need: University of Chicago Booth School of Business, accounting professor Michael Minnis, has been studying the SBA’s program and he estimates that $720 billon will be required to meet the demand. But, that assumes 2.5 months of payroll funding will get the job done, and what’s necessary could vary, even by county.
In the meantime, small business all over Oregon and the rest of nation are struggling to maintain employees and pay the bills. On April 3, the U.S. Chamber of Commerce released a poll of the nation’s businesses showing that 24% of businesses are two months or less from closing permanently amid the economic downturn caused by the coronavirus pandemic.
By Sam Schultz