PPP Small-Business Loans Left Behind Many of America’s Neediest Firms

The Paycheck Protection Program failed to take into account the widely varying needs and limitations of small businesses caught in Covid-19 lockdowns

By Yuka Hayashi, Ruth Simon and Peter Rudegeair of The WSJ. Excerpts:

"The PPP was most helpful to enterprises able to continue operations or quickly reopen. It largely failed those that either closed during prolonged lockdowns, drew too few customers to afford more than a skeleton staff, or were overwhelmed by high overhead costs, such as rent.

Some businesses were too small to have relationships with banks, which processed the loans, leaving small entrepreneurs—sole proprietors, mom-and-pop operations and the like—at the tail end of weekslong lines. Some had poor records or little, if any, payroll.

The government has approved 4.6 million loans worth more than $513 billion as of Tuesday. Those have reached a fraction of the 31.7 million small businesses in the U.S., a figure that includes 25.7 million firms without employees, according to the Small Business Administration."

"Some business owners said they didn’t apply for loans, or they returned the money because they didn’t think they could meet the requirements."

"Treasury Secretary Steven Mnuchin, whose department oversees the program along with the Small Business Administration, said, “If you want to do something at large scale that helps the economy, it can’t be perfect in every micro fashion,” given the urgency."

"As originally implemented, the loan and interest could be forgiven if companies retain or rehire employees using at least 75% of the funds to pay workers."

"The 75% requirement was criticized by many businesses with high rents"

"The program was designed to work through banks and other lenders. That wasn’t an issue for hotel and restaurant chains, which were granted exemptions to the 500-employee cap. Shake Shack Inc., Ruth’s Hospitality Group Inc., owner of the Ruth’s Chris steakhouse chain, as well as other public companies and several wealth managers received PPP loans. When word got out, Shake Shack, Ruth’s and others returned the money.

Many small-business owners have few ties to banks beyond checking accounts. A survey released in April by the Federal Reserve’s 12 regional banks found that only 44% of small businesses with at least one employee had obtained a bank loan in the past five years.

From the start, the loan program didn’t take that into account."

"Ms. Nersesian’s local bank didn’t join the program, and she tried five other lenders on the SBA website. They all turned her down, she said, because she wasn’t an existing customer"

"Banks, which are expected to collect about $20 billion or so in PPP loan fees, also complained. Days before the program was to start, executives from the largest U.S. banks pressed SBA officials in a conference call for details about documentation and loan requirements. Without them, they said, banks wouldn’t be able to lend quickly, according to people who were on the call.

It didn’t seem the SBA understood the complexity of launching a national loan program in so short a time, these people said. For one thing, an SBA official on the call assumed banks already had payroll data from their small-business customers, one of the loan requirements.

Bankers explained that payroll processors, not banks, kept those records. More than half of small businesses don’t have employees or manage payroll themselves, according to a National Small Business Association survey."