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PPP Loans - Business Impact

The goal of PPP was to keep American workers on the payroll. There has been much controversy surrounding the Paycheck Protection Program, which was meant to support businesses with 500 employees or fewer. 

There was a myriad of problems, to say the least.  The United States government incorrectly gave numerous Paycheck Protection Program (PPP) loans meant for small businesses battered by the pandemic to firms that already had received a PPP loan or were prevented from transacting with the federal government, a recent report revealed. Moreover, most of the money was disbursed to companies with more employees, rather than smaller ones with minimal numbers of staff.

What actually happened?

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The Trump Administration's Dissemination examined the more than 5.2 million (PPP) Paycheck Protection Program loans totaling $525 billion since April of last year based on the Select Subcommittee report on the COVID Crisis:

  1. Some loans, around 10,000, totaling more than a billion dollars went to companies that received more than one PPP loan and were a violation of the program.
  2. The government handed out more than 600 loans to companies removed from doing business with the government because they were "suspended or debarred" from receiving federal contracts. These totaled about $96 million.
  3. They gave over 350 loans totaling $195 million to businesses that have been flagged for "integrity issues and significant performance."
  4. Over 11,000 loans totaling $3 billion were awarded to companies that did not include complete information from applications.

For some, even if PPP only offered a small loan, it still helped to keep their businesses going.

The PPP helped keep more than 5 million small businesses afloat during the pandemic. The Paycheck Protection Program fund has about $140 billion left unspent from the roughly $660 billion Congress provided.

What should be done?

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The Senators were in discussions to revise the program so that the smaller businesses that may request a second loan still can receive funds. Republicans submitted that those with up to 300 employees should be eligible, and Democrats proposed a cap of 100 employees.

Numerous businesses have credited the PPP with keeping them alive when much of the economy closed down. But the need for such support has been reduced somewhat by the decision by many state and local governments to alleviate social distancing restrictions.

Under the PPP, businesses with over 500 or fewer employees were eligible for loans up to $10 million, which becomes forgivable if they spent at least 60% of the amount on the payroll. Republicans defended the total success of the PPP, which reportedly rescued 51 million jobs by the administration's count.

Created by the Coronavirus Aid, Relief and Economic Security (CARES) Act that Congress passed in March, the PPP stumbled out of the gate due to technical issues posed by a massive volume of loan applications.

Accusations arose that private financial institutions in charge of processing the loans favored clients at the head of the line as smaller businesses were forced to wait. Moreover, the fund ran out of money, and Congress had to approve a second round.

Over 400 publicly traded companies like Shake Shack and Professional sports teams like the NBA's Lakers also took advantage of the businesses associated with members of Congress.

There are profitable firms with access to loans, a loophole that would not be allowed under the revised PPP lawmakers are now discussing. 

Moreover, USA Today's investigation found that at least 700 vendors that scored lucrative federal coronavirus contracts also received emergency aid, including PPP loans. 

Treasury Secretary Steven Mnuchin mentioned that the federal loans exceeding 2 million dollars would get a full review after it was disclosed that the Lakers received a $4.6 million PPP loan. At the time, Mnuchin mentioned that it was inappropriate for such businesses to apply for and receive PPP loans.

The committee's report found that the decision to check loans valued at $2 million or more thoroughly left the other 99.4% of loans with little or no oversight.

Mnuchin told the committee that he expected smaller loans would get some level of scrutiny as well.

Conclusion

The Paycheck Protection Program is a government initiative that aims to help small businesses keep their employees and tide them over until the economy recovers. The speed at which this program was implemented was both its success and failure. It is quite unfortunate that the funds were misallocated, but at least right now the government is trying to address this problem and give it to businesses in the most need.