U.S. small business loan program faces backlash as not-so-small businesses secure aid
The Los Angeles Lakers, one of the most valuable NBA teams, and Shake Shack, a big restaurant chain, among others, have reportedly received loans from the Paycheck Protection Program (PPP), which is intended to help small businesses retain their employees during the crisis.
The Los Angeles Lakers, valued at over 4 billion dollars according to Forbes, received a 4.6-million-dollar loan under the PPP, and recently said it had returned the money to the federal government.
In a statement released Monday, the Lakers said once they found out the funds from the program had been depleted, “we repaid the loan so that financial support would be directed to those most in need.”
U.S. Treasury Secretary Steven Mnuchin told CNBC Tuesday that he did not blame the banks that processed those loans, but the companies that applied for them. “I’m not a big fan of the fact that they took a 4.6 million dollars,” he said. “I think that’s outrageous.”
Meanwhile, a number of large restaurant chains have managed to secure funds from the program, though several have also said they would return the money following public outcry.
Shake Shack, with more than 200 branches, received 10 million dollars of loans from the program, so did Potbelly, which has more than 400 locations, according to a recent report from the Hill. Ruth’s Chris Steak House, with 150 locations, received 20 million in loans.
“Small businesses were prepared and ready to apply for these programs, the only financial support options for most, and it is very frustrating that the majority of these true small businesses haven’t received their loan yet,” said Holly Wade, director of Research and Policy Analysis at the National Federation of Independent Business.
Marco Rubio, chairman of the Senate Small Business and Entrepreneurship Committee, recently defended the small business loan program, saying that “in emergencies, mistakes are going to be made.”
Amid mounting controversy, Mnuchin pledged that the government will audit any company taking out more than 2 million dollars of the program. “The Small Business Administration will be doing a full review of that loan before there is loan forgiveness,” he said.
The program, designed to offer support for businesses with fewer than 500 employees, allows companies to have their loans forgiven if they spend the money on payroll, rent, mortgage interest and utilities.
In a 2.2-trillion-dollar relief package approved by U.S. Congress late March, 349 billion dollars had been allocated to fund the PPP. The program, however, ran out of money within two weeks due to high demand. Last week, the Congress passed a 484-billion-dollar relief package, of which more than 310 billion dollars goes to the PPP as additional funding.
The Small Business Administration (SBA)’s program began accepting new applications on Monday, but the electronic filling system crashed just a few minutes after reopening.
“Unprecedented demand is slowing our system response times,” SBA Administrator Jovita Carranza tweeted Monday. “Currently, there are double the number of users accessing the system compared to any previous day during the first round of #PaycheckProtectionProgram funding.”
Carranza announced later that the second round of the program processed nearly 50 billion dollars in loans in the first 24 hours.
Calling Monday a “very messy day,” Rubio said on Twitter that one of the reasons is the huge backlog of pending applications after a 10-day lapse of the program, due to disagreement in Congress over the new relief package.
Rubio, a Florida Republican, also noted that there is anxiety created by the broad understanding that new funds will also eventually run out.
The small business loan program came under scrutiny as the coronavirus continues to sweep the nation, with the death toll still rising and the economy devastated.
As of Tuesday, over 1 million cases and over 58,000 deaths have been reported across the country, according to a data-tracking tool developed by the Center for Systems Science and Engineering at Johns Hopkins University.
Meanwhile, recent data from the U.S. Bureau of Labor Statistics showed that more than 26 million Americans filed jobless claims in a five-week period, as businesses, especially small ones, struggle to retain their employees amid widespread shutdowns.
White House economic advisor Kevin Hassett told CNBC on Monday that he expects April’s unemployment rate to surge to 16 percent or 17 percent, up from 4.4 percent in March.
Hassett said the U.S. economy could see contraction in the first quarter, and as damage continues to be revealed, the economy could shrink up to 30 percent in the second quarter.