COVID-19 Update: The PPP Disappointment, Cynicism, and Promises

Most people now know the Paycheck Protection Program (PPP) loan program was grossly underfunded compared to the need. The majority of small business owners who applied through their banks received nothing. Small business owners are defined in the Act as those with fewer than 500 employees.

The SBA reports on its website that through April 16 it approved 41,635 loans from Colorado businesses for a total of $7,392,960,359.00. My law firm represents small business owners in Colorado. In talking to our clients, we have identified only one business whose PPP application was approved and funded.

There was minimal to no oversight of the program, and it did not operate according to its stated purpose. The SBA reports on its website that through April 16 it had guaranteed 1, 035,086 loans under the PPP. Disclosure of who received the loans is not required by the CARES Act and may not otherwise be disclosed publicly, which makes oversight difficult if not impossible.

Publicly traded companies must file reports with the Securities and Exchange Commission. SEC filings reveal that $300 million of the $349 billion in PPP loans went to 71 publicly traded companies that in no way are small businesses. PPP loans even went to 20 publicly traded companies with current market capitalizations greater than $100 million. The largest one is Shake Shack, a chain of burger restaurants in New York City reportedly worth $1.6 billion, which received $10 million in PPP funds even though it had $112 million of cash on hand before it sold another $150 million of stock. Further, while Shake Shack had 7,603 employees at the end of 2019, it laid off or furloughed about 1,000 during the pandemic, leaving its payroll still well in excess of 500 employees. The business announced Sunday evening that they would give the money back. But, without oversight, how will we know that they did?

Several publicly-traded companies receiving PPP loans are based outside the United States in countries such as Singapore and Canada. More information can be found here.

Ruth’s Chris Steak House, a chain of high-priced steak dinners with 150 locations that is valued at $250 million, reported that it received $20 million in funding from the Paycheck Protection Program.

The Potbelly chain of sandwich shops, with over 400 locations and valued at $89 million, reported that it received $10 million.

This was possible because, after being lobbied by the restaurant and hotel industries, Congress and the White House allowed separate restaurant and hotel locations to apply as if they were separate businesses even though they were part of large chains. More information can be found here.

And, instead of first come first served, there have been reports that some participating banks prioritized PPP applications by size of request in order to maximize the fee income they earn from the loans. It is not inconceivable that some banks worked with their largest customers to get their applications underwritten before the PPP program officially opened on April 3. Perhaps this was because getting PPP money would make it less likely that their customers would default on their preexisting bank loans.

Confidence is high that Congress will fund the PPP program a second time, perhaps as early as this week. Details are not currently known. But some commentators are saying that only loans that had been approved by banks and submitted to the SBA before the initial funding ran out will be funded in the second wave, because there won’t be enough additional funding to cover any other applications. If so, the many business owners whose applications are still being processed by their banks will be left out in the cold again.

It is unlikely that Congress can or will authorize funding adequate to help all small business owners. But, even it if does, without adjustments to the eligibility requirements and set-asides for businesses with fewer employees – perhaps ever fewer than 25 employees – smaller businesses with employees will not receive the funding they need.