When the coronavirus came to the shores of the United States and the economy went into quarantine, most people rallied to support each other. They supported their small businesses, along with their friends and neighbors. They wore masks, socially distanced and dutifully washed their hands and countertops.
The government responded with the Paycheck Protection Program (PPP) with its loans meant to ensure jobs were kept secure until the pandemic was over.
While all this was going on, there were also regrettable cases of people abusing the system and taking PPP loan funds when they didn’t need them or using the money for purposes outside of what was intended.
The Paycheck Protection Program not only gives loans to companies, it will forgive those loans if the money is used to keep workers on the payroll and cover basic operational costs. The banks who facilitate the loans are the ones responsible for ensuring compliance.
Sounds fair enough on the surface. But even if the money is used for other purposes, the loan only needs to be paid back at 1 percent interest—a phenomenally good lending rate—and there were clearly businesses that saw the opportunity to get a low-interest loan.
“Some of these recipients are ridiculous,” said Craig Holman, a lobbyist for Public Citizen, a consumer advocacy group. “When the whole purpose of the program is to make sure employees remain on the job and you’ve got 90,000 recipients who haven’t done that, that is at least 90,000 businesses taking advantage of a low-interest loan.”
To back up his 90,000 number, Holman notes that according to the government’s own data, 50,000 companies did not guarantee they would keep employees on the payroll—as a part of their application. Another 40,000 firms simply left that part of the application blank and invited observers to guess at the motivation.
Moreover, the loans were not restricted to small businesses and those struggling to stay afloat. To focus on the legal industry in particular, it was found that the top 200 law firms in the country—the Am Law 200—were well-represented among the businesses that received substantial PPP monies. At least 3 dozen Am Law 200 firms received anywhere from $5 million to $10 million in loans.
The PPP loan fund has been replenished once since the initial funding authorization was passed by the U.S. Congress and signed into law by President Trump. Negotiations are currently taking place to provide up to another trillion dollars of aid. We’ll find out if the government agencies and banks responsible for oversight are able to tighten up the approval process and get the money to those it’s intended for.