A popular small business loan program supported by the government to help businesses that have suffered because of the coronavirus has returned, with some fixes to previous defaults on forgivable loans, with low interest rates, but also with some of the same loopholes that could benefit larger operators in Main Street’s mom and pop stores.
Washington’s latest $ 900 billion stimulus effort will replenish the Wage Protection Program for a third round of funding with $ 285 billion at a time when small businesses continue to struggle. It was passed by Congress Monday night after months of political haggling. He still wonders if President Donald Trump will sign it after the president posted a video Tuesday night criticizing the COVID-19 relief bill.
The biggest difference from the third round? Companies that have previously lent the program and spent the funds can take out a second loan. The so-called “PPP loans of the second draw” were not part of the first two rounds. The government also added new restrictions to limit the amount of money earmarked for larger companies or those that don’t really need public aid when there is private funding.
All in all, government watchdogs who have been following the PPP let’s say it has improved, but the last round, like the first two, will not be free of fraud.
“I think he’s more likely to go to the companies that need it the most because the first two rounds of abuse have been well publicized,” said Steve Ellis, who is the chairman of Common Sense Taxpayers. “But it’s a lot of money and there’s no guarantee that it won’t be used by individuals and companies who shouldn’t get it.”
The following are some of the gaps that the government has closed, reduced or left open in the recovery of the program:
- The government limited lending to second-time borrowers to $ 2 million, below $ 10 million. But, as in the past, the so-called affiliation rule is waived, which means that two or more separate divisions of the same company can claim $ 2 million each, as long as their operations are separate. This will likely allow restaurants, hotels and other chain companies, once again, to borrow for more than the individual limit.
- The government reduced the number of employees a company could have from 300 to 500. But it also expanded the types of companies that might be eligible to avoid this rule. For example, like restaurants and hotels, news organizations that have a total of more than 300 employees are eligible to borrow from the program as long as they don’t have more than 300 employees working in one place.
- He is also new to the third round of the PPP: high-end cooperatives and Hollywood agents. Residential cooperatives had been banned from receiving aid for small businesses in past rounds. In addition, the government set aside $ 15 billion for smaller performing arts organizations fighting for survival, but also left the door open for at least some of the money to be captured by talented agencies representing performing artists.
- Unlike the first round, companies have to show their business dropped at some point during the coronavirus pandemic, but only for a period of three months. Therefore, if a company fought at the beginning of the pandemic, but six months later goes well, it will still be eligible for the third round of the PPP.
- Public companies are specifically prohibited from obtaining new PPP loans. But venture capital-owned companies, private equity firms or other deep-pocket investors are still eligible.
Caroline Ciccone, the executive director of Accountable.US, who has been critical of the Wage Protection Program, believes that the exclusion of public companies, as well as the reduction of the employee limit to 300, is a significant improvement. But he says there is still a big gap between what most people believe is a small business and a company that employs 300 people.
The new round of money sets aside $ 25 million for a federal agency that promotes minority-owned businesses and another $ 15 billion that can be taken advantage of by community banks or minority-owned banks. Still, it stands out compared to the $ 285 billion global fund. Studies from previous rounds found that minority-owned companies did not gain equal access to PPP loans.
Another potential problem: The updated program does not yet have the basic collateral that is part of the typical U.S. Small Business Administration loan process. Banks are usually responsible if they take out a loan that has obviously been against the rules. Banks had asked the SBA to relinquish that responsibility during the first two rounds of the PPP, but the new rules Washington wrote for the third round specifically say that banks cannot be held responsible for loan fraud.
Both Ellis and Ciccone said this rupture for banks could be a problem, as we now know there was widespread fraud in the first two rounds of the program.
“The argument is that we need to get the money out as quickly as possible,” Ciccone told Accountable.US. “But look at what happened in the early waves. There was fraud in the tens of billions of dollars. At the very least, you should keep the very limited verification standards that normally exist.”