Nearly $135 billion provided by Congress to help small businesses struggling to survive the COVID-19 pandemic was left on the table Tuesday as the Paycheck Protection Program stopped accepting new applications.
The program was so popular after Congress created it in March that it ran out of its initial $349 billion in less than two weeks and had to be replenished.
But the second $310-billion round of forgivable payroll loans didn't go as quickly after some large companies encountered public backlash and criticism from President Trump for allegedly misusing the program, and others were frightened off by the program's vague, ever-changing rules, fearing they would be left on the hook for loans they could not repay.
The bulk of the total $519 billion lent by PPP went out the door by May 8. By that point, a total of more than 4.1 million loans worth $431 billion were issued. After that, demand fell sharply with just 590,667 new loans worth a combined $88 billion.
Some small businesses complained the rules were onerous and confusing.
There are “a certain number of small businesses that are looking at other options because they just don't want to deal with the headache,” said Molly Day, vice president of the National Small Business Assn.
The CARES Act, passed by Congress in March, required that companies use PPP loan money within eight weeks, with a June 30 spending deadline. On June 3, Congress extended that time frame to 24 weeks.
The law also originally required that companies spend 75% of their loan money on payroll in order to qualify for loan forgiveness. Congress lowered the payroll requirement to 60%.
Another obstacle for many businesses without banking relationships was the program's reliance on commercial lenders to distribute the funds. To get the money out the door quickly, the Small Business Administration based the PPP loan program on its existing 7a loan program, which is traditionally tapped by companies with 50 to 100 employees.
That “inherently locked out people who haven't engaged with a lender, haven't engaged with SBA,” said Katie Vlietstra, vice president for the National Assn. for the Self-Employed. “We knew right away this was going to be a disaster.”
The rules requiring so much of the money to go toward paychecks also excluded those businesses with few employees but large overhead for things such as rent or supplies, she said.
Others may have been scared off by the potential for bad press or government investigators. After public backlash to news that some large, well-funded publicly traded companies had received loans worth tens of millions of dollars, the Treasury Department warned undeserving companies to return the money or face criminal penalty.
Concerns grew about how aggressively the federal government might pursue criminal charges against companies that certified on their loan application that they faced a drop in revenue because of the coronavirus, but cannot prove it, said attorney Nick Oberheiden, who specializes in representing businesses and individuals under federal investigation.
"The rumors quickly spread that it is dangerous, or can be dangerous, to apply for the PPP program,” Oberheiden said.
The rules for the loans changed weekly, or daily in some cases, he said. There is still confusion about whether the business owner is personally responsible for repaying the loan if the business closes. And in the end, some businesses decided the aid wasn't worth the potential liability, he said.
Congress and the administration are already discussing what to do with the remaining $135 billion in the account. Sen. Marco Rubio (R-Fla.), chairman of the Senate Small Business and Entrepreneurship Committee, said he'd like to see it made available for another round of loans.
Rubio said the fact that money was left in the PPP shows that it is time to change the program so it helps other businesses.
"There's strong evidence that the program has been fully utilized by everyone that concluded that would benefit them," Rubio said. "Obviously we'll have to be more targeted at truly small businesses. And in addition to that, I'm also developing a program to provide financing for businesses in underserved communities or opportunity zones and other ZIP Codes that would fall in that category ... because I'm very concerned that a lot of minority businesses, particularly Black-owned businesses already struggling to begin with, have access to capital."
Treasury Secretary Steven T. Mnuchin told the House Financial Services Committee on Tuesday that there appears to be bipartisan support in the Senate for repurposing the remaining PPP funds, with the hope of seeing legislation by the end of July. The discussions include extending the loans to businesses hardest hit and in industries still struggling, such as restaurants, he said.
But Rep. Nydia Velazquez (D-N.Y.), who chairs the House Small Business Committee, said Congress can’t discuss extending the program or repurposing the money unless it has access to data about which businesses got loans.
“We need to know if the program worked as intended by Congress,” she said. “We know 4 million businesses accessed the program, but what about the millions of minority- and women-owned businesses that were not able to access the program?”
Velazquez said talk about letting businesses apply for a second loan might be premature.
“No one should get a second loan unless we know that most businesses who are struggling have a chance to get a loan,” she said.
Congress and the administration have argued for weeks about what information about loan recipients should be made public, with Mnuchin initially saying even the names of the companies were "proprietary" and could not be provided to Congress. Mnuchin said Tuesday that some recipient data should be provided to Congress by the end of the week.