PAYCHECK PROTECTION BOONDOGGLE, aka, YOU’RE SCREWED SMALL FRY!

This blog was intended to be posted a few weeks ago, however every time I was set to upload this, I heard the voice of the late TV pitchman Billy Mays saying “But wait, there’s more!”

The Paycheck Protection Program (PPP) was instituted by the federal government as part of COVID-19 financial relief. On paper, the PPP sounded great. Small businesses, 500 employees or fewer, could obtain prompt funding to cover payroll expenses in large part and, if properly spent, the money would be a non repayment grant rather than a low interest loan. The emphasis was on PROMPT processing of loan applications so that small businesses could continue paying their employees.

Applications were accepted beginning April 3. The funding quickly ran dry. That funding amount was $349 billion, administered by the federal Small Business Administration, ostensibly to help “small businesses” survive this surreal and economically crushing time period.

In the late March and early April run up to PPP application, I was contacted by some clients, friends and family members who operate small businesses. All of these operations are truly small, even tiny, ranging from 2-12 employees. All of them promptly applied with their home banks for PPP assistance. The result was not good.
None of these half dozen or so small businesses received prompt approval and funding. All of these folks had to supplement their PPP applications with additional information or documentation. One client finally received funding in late April. Another small client received funding last week, the week of May 4. Other clients have loans in progress except for a client with 2 employees whose application has disappeared into the abyss of banking and bureaucracy.

So of my admittedly very tiny sampling (nothing empirical about this) I am aware of a whopping 2 businesses that have received modest amounts of funding 5 weeks from the PPP program initiation.

And as I drafted this discussion of the disappointing way that PPP fell short of assisting truly small businesses, Billy Mays called out to bring to my attention the following:

• PPP defined a small business as having no more than 500 employees, at a single location. As a result, chain business and restaurants, that are huge business, each became a small business for purposes of the PPP;
• The maximum amount of PPP assistance was $10 million. At least two one of my clients requested PPP assistance of less than $10,000;
• Publicly traded companies, with more than adequate resources and access to capital, received $1 billion of PPP funding. For example, as reported in the Washington Post on May 1:
◦ Veritone, whose CEO was paid $18.7 million, received $6.5 million;
◦ Aquestive Theraputics, who employs 219 people, but whose CEO made $2.9 million in 2019, received $4.8 million in PPP assistance. After this transaction was publicized, Aquestive said it would return the money;
◦ Ashford Hospitality Trust made over 100 filings and obtained $76 million in PPP funding. This was done by treating multiple subsidiaries of large companies as a separate entity;
◦ AutoNation, which is a network of auto dealers, received $77 million. Nonetheless, AutoNation then returned some employees to furlough status and rescinded certain wage guarantee arrangements

With the late Mr. May’s voice ringing in my head, there is more, much more:

• The Los Angeles Lakers received $4.6 million, while having an estimated value of over $3 billion. After this largesse was disclosed, the funds were said to be returned. Again, after disclosure;
• Ruth’s Chris Steakhouses (Ruth’s Hospitality Group, Inc.) received approximately $20 million, since returned after being reported;
• Shake Shack Inc. received $10 million, since returned after being reported;
• This list of publicly traded companies and/or firms with adequate resources goes on

Even after a second round of PPP funding of about $310 billion, many true small business are shut out. There have been reports that many small banks trying to process loans for their customers have been shut out as well. KDKA news reported on May 4 that Alexander’s Italian Bistro in Pittsburgh, a venerable dining spot that opened in 1958, was closing as it could not obtain PPP funding in its time of need.

The respected Brookings Institution stated “Had Congress set a maximum limit of $1 million it would have freed up over $150 billion – enough money to more than double the number of truly small businesses that received aid.”

Brookings Institution, meet the late Alexander’s Italian Bistro.

Author: opsitnickslaw

Allan J. Opsitnick J.D. and B.A. Degrees, University of Pittsburgh

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