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Federal Market Intelligence for Small Business |
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Set-Aside Alert news analysis:Small biz loans raise concernsThe CARES Act program to provide small business relief during the COVID-19 crisis has already depleted its $350 billion taxpayer-funded budget. Attempts to provide more money for the program are running into obstacles, but prospects appeared to be improving by press time. Reports that the loan terms were structured so favorably that they quickly attracted many larger firms, while struggling small firms were crowded out, are among the hurdles to restoring the program in its current form. There also are concerns about potentially inadequate oversight and political or geographic bias in the way the funds were disbursed, as well as requests for more COVID-19 support to hospitals, states, municipalities and individuals. The Paycheck Protection Program, which is the main component of the small business aid in the CARES Act, officially began accepting applications on April 1. On April 8, Treasury Secretary Steven Mnuchin said the fund was exhausted and asked for more money. While the previous two COVID-19 stimulus packages had been bipartisan, Senate Majority Leader Mitch McConnell, R-KY, attempted to push through $250 billion for the paycheck fund without discussion with Democrats. It failed to pass. There was an impasse for over a week, but recent talks between Mnuchin and House Speaker Nancy Pelosi, D-CA, are said to be closing in on an agreement. Aside from the political turmoil, there are other hurdles. “Pocketing the money” Some economists are calling attention to the unusual structure of the paycheck loans, in which a portion of the loan is fully forgiven. That feature has attracted many larger firms. National restaurant and hotel chains got a piece of the pie, including Ruth's Chris Steak Houses, $20 million; Potbelly Corp., $10 million; and Shake Shack, $10 million. More than 50 publicly-traded companies have collected nearly $250 million in the paycheck funds, according to CBS News. “The reason the system has broken down and exceeded all costs is the foolhardy idea of converting the loans into ‘grants’ that don't ever have to be repaid to taxpayers,” economist Stephen Moore wrote in a Fox Business column. “Thousands of financially healthy businesses are getting loans of $100,000 to $3 or $4 million and they are pocketing the money. They weren't going to lay off workers in the first place.” He and others are urging Congress to better target the paycheck program to reach struggling small firms. SBA statement Mnuchin and Jovita Carranza, administrator of the Small Business Administration, have defended how the funds were distributing. The SBA “processed more than 14 years’ worth of loans in less than 14 days” and assisted more than 1.6 million small businesses, they said in a joint news release. “The vast majority of these loans—74% of them—were for under $150,000, demonstrating the accessibility of this program to even the smallest of small businesses,” they said in the SBA statement. Geographic distribution There also are reports of possible political or geographic trends in distribution. Bloomberg News found that the percentage of eligible payroll approved for paycheck protection in each state varied widely. The Bloomberg study found that some states had a very high percentage of their eligible payroll approved for loans, including NE, 82%; ND, 80%; SD, 79%; KS, 79% and ME, 75%. The states with the lowest percentages of approvals included DC, 30%; CA, 38%; NY, 40%; NV, 42%; NJ, 45%; and WA, 45%. Some observers have noted that states with the highest rates of approvals lean Republican while those with the lowest rates lean Democratic. Inadequate oversight? Democrats pushed to include oversight mechanisms in the huge $2 trillion COVID-19 stimulus package. However, some of those protections have not been fully established yet, even though the $350 billion in small business aid already has been obligated. As of April 17, congressional oversight panel reportedly had a single staff member. Also, the Senate has not yet confirmed a key inspector general for the Treasury funds.
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