The PPP loan: a soundbite with no substance

We are just figuring out how the program works and it is already out of money.

I read today that the PPP program, the loan program for small businesses designed to keep people employed, is very close to out of money. According to the New York Times, banks have distributed $315 billion of the $350 billion made available.

The idea of the loan, to cover two months of payroll, for small businesses, the majority of the economy was great. Despite policial rhetoric, the best way to keep an economy going is to get money in the hands of the people who need it and spend it. So supporting the employees of small businesses makes sense.

The implementation, though, has turned the program into a mad scramble for limited resources, with little clarity on how to play the game.

For the past few weeks, I have been helping small companies apply for these loans, and of the dozens I have helped, maybe two have received funding.

Before the ink was dry, it was clear that $350 billion would not be nearly enough. The US economy is about $20 trillion a year or about $1.6 trillion a month. Most of the economy consists of small businesses — according to JP Morgan Chase there are 28 million. businesses in the US, and 99% of those are “small businesses.” According to the commerce department, salaries represent around 45% to 50% of the GDP. So two months of GDP is about 3.2 trillion, and 45% of that is $1.44 trillion, 99% of which qualifies for the loan program.

Then Congress did the right thing by expanding the definition of small businesses to include freelancers and sole proprietors. So that 1.44 trillion is understated.

So $350 billion is a drop in the bucket. It looks big enough to be meaningful but isn’t. It is a great soundbite, but not much help.

But the lack of funding is only a part of the disaster. The implementation of this program has been ridiculous.

First, inconsistency and shifting rules made figuring out how to apply for the loan next to impossible. In late March and early April, the rules shifted nearly daily.

I get that there was a process of trying to figure out how to make the program work. But, there was never any recognition or explanation of the changes; the documents would just be different. Those of us trying to help people figure out how to qualify for a loan had to reread the instructions every day and adjust the advice we had given the day before.

And these were big changes. For example, there is a $100k cap on compensation. At first, the $100k did not include benefits, so if someone earned more than $100k the salary part would be capped at that amount, and benefits would go on top. Then overnight, the Treasury Department changed that rule so that compensation included benefits, and that total amount would be capped. Two days later, they changed it back.

The Treasury Department also made the entire process more opaque by pushing this loan through banks. The loans are government-backed, and the SBA had a process for lending money up and running, the EIDL program. Millions of businesses were already applying for that loan. But instead of using the EIDL program, Treasury decided to foist this upon the banks.

So, rather than create one process for the entire country, every bank created its own. This dramatically increased the amount of effort needed to process the loans creating dozens of processes just takes more work than creating one. And, each bank’s requirements and processes are slightly different. So we end up with Congress’s intention, Treasury’s shifting rules and banks trying to make sense of it all.

The rest of us are left figuring out how to navigate this morass, while the people who need the money for rent and food sit and wait.

The Treasury Department decided that businesses could apply for the loans on Apri 3 and sole practitioners on April 10. The banks, however, were not ready on April 3, and since we knew this program was underfunded, everyone sat on their browsers, hitting refresh until the banks finally figured out how to get their process started. The process generally involved capturing a name and number so that someone could get back to the applicant.

Many applicants from April 3 are still waiting for a call.

By the time April 10 rolled around, it was clear that this process would take weeks and that sole practitioners would likely never see anything. Still, people apply, and we wait to see what will happen.

Or, people are trying to apply, I should say. Because since the banks are already overwhelmed, they cannot deal with the flood of applications from their clients, let alone new clients. So many of them are only accepting applications from clients who already had a business banking relationship.

Most sole practitioners do not have a business banking relationship with their bank.

Somewhere in this mess, though, $315 billion have been lent. I have no evidence of this, but when all is said and done, I suspect that the majority of that money will have gone to the most well off companies with the best banking relationships and the most aggressive private bankers who were able to push these loans through first.

And by now, we are already 4–5 weeks into the crisis. Employers with zero revenue have already had to make tough decisions regarding their employees.

The process is getting better, and the banks have begun to figure out how to get these loans processed. To be fair, they have gone from zero to funding loans in days with inadequate guidance from the Treasury. That is remarkable.

But the program that is just getting started is out of money. So will Congress and the Administration refund it? Or are they happy with a few sound bites, pretending that they have done something meaningful?