Small business owners who were shut out of the government's $349 billion Paycheck Protection Program (PPP) after it ran out of money last week are livid after learning that banks doled out tens of billions in funds to large corporations - around 20% of which were public companies who had other means of accessing capital.
Bloomberg highlights Robyn Schultz, a small business owner who was waiting on approval for a $40,000 PPP loan for her Birmingham, Alabama electrical company when the PPP ran out of funds. Schultz, 60, and her husband Steve Bearden are struggling to keep their six full-time employees on the payroll. The couple isn't sure they can wait for the additional $320 billion approved by Congress on Thursday.
"Smaller companies like us are probably just going to be washed under the rug," said Schultz.
The swift and unprecedented response by the U.S. government and the Federal Reserve to the coronavirus’s economic fallout doesn’t mean much to folks like Shultz, who see help coming too late or not at all.
Policy makers in Congress, the Treasury Department and the central bank have taken a lesson from the last financial meltdown, 12 years ago, when ordinary Americans were left to fend for themselves and millions lost their homes. This time, they’ve included individuals and small businesses in their aid packages in a way they didn’t in 2008, when bank bailouts, even as they saved the system from collapse, sparked outcry over tilted playing fields for the rich and ignited a backlash that altered the political direction of the country.
But if one of the lessons of 2008 is to help Main Street as well as Wall Street, the lesson seems to be only partly learned. Americans live in two separate and unequal worlds, and the bailouts reflect this. -Bloomberg
Some of the 1.7 million PPP applicants describe drowning in red tape, as they waited for the Treasury Department to provide clarification and guidance as Congressional Democrats held up additional funds in order to negotiate for their interests.
"It just seems like the left hand doesn’t know what the right hand is doing," said Schultz. "I don’t know where to turn for guidance."
The fact that large corporations appear to have been prioritized over the small businesses the PPP was intended to help was insult on top of injury - after the Small Business Administration's clunky and confusing rollout left small business owners scrambling to tap funds, while Fed Chairman Jerome Powell kept cash flowing into the financial system - a $1.25 trillion buying spree which limited losses for some billion-collar hedge funds which made wrong-way bets with leverage, according to the report.
“In 2008, they forgot about Main Street and thought only about Wall Street,” said Lawrence Jacobs, director of the Center for the Study of Politics and Governance at the University of Minnesota. “In 2020, they did a parade down Main Street and forgot to leave the goodies.”
In total, the federal government and central bank have committed a combined $2.6 trillion to stem the economic fallout from the Wuhan coronavirus - which includes the two tranches of PPP funds, and $77 billion for the SBA Economic Injury Disaster Loan program. Another $600 billion in not-yet distributed funds have also been set aside for mid-sized companies, which will be able to access capital from the Fed's two Main Street Lending facilities.
"A lot of the pressure came from outside the government, and I do think Treasury has been very attuned to it," said Columbia University professor Glenn Hubbard, who served on president George W. Bush's Council of Economic Advisers. Hubbard says he thought the Treasury Department had learned from the mistakes of 2008, and was going to take greater measures to help those in economic distress.
"The bad press from ’08, not dealing with homeowners, was probably on people’s minds," he added.
Bloomberg notes that small businesses provide nearly half of America's jobs, accounting for roughly 45% of national production and almost all the growth in employment.
Another shafted small business owner, Alex Steed, who owns a video-production company in Portland, Maine, says he wasn't even able to get someone from the SBA on the phone after applying for a loan.
"I was told I was caller number 1,403, and it would be around a three-hour wait," said Steed. "I stayed on the line for several hours before it went dead. I never ended up connecting with anyone."
"The government and people are touting how they have this program ready, but from my perspective there’s just a big disconnect, said Melissa White, a self-employed hair salon owner of 18 years in San Antonio, Texas. "Everybody’s confused."
Meanwhile resentment is growing over the bigger companies which have received PPP loans as smaller businesses have limited borrowing options. Restaurants and hospitality companies were able to take advantage of a loophole by dividing their workforce into smaller units - receiving stimulus funds by ensuring that each location had fewer than 500 employees.
Companies receiving the maximum loan amount of $10 million include Hallador Energy Co., a Terre Haute, Indiana-based coal company that had more than 900 employees at the end of last year; San Jose, California-based Quantum Corp., a tech firm with more than 800 workers in December; and Potbelly Corp., which operates 428 sandwich shops. A Potbelly spokesman said Congress allowed funding for restaurants because their workers are “vital to our economy.” Hallador and Quantum didn’t respond to requests for comment.
Ruth’s Chris Steak House’s parent, Ruth’s Hospitality Group Inc., received two loans, each for $10 million, because it has two holding companies. Ruth’s owns 83 restaurants and has 5,740 employees. It decided on Thursday to give back the money, a few days after Shake Shack Inc., the national burger chain, said it would return the $10 million it received from the SBA. -Bloomberg
"When I think of small businesses, I think of mom-and-pop stores with a handful of employees," said Texas energy consultant Alex Gonzalez - who applied for an SBA loan but wasn't able to receive funds. "You wonder how much of this money that was intended for companies with 3, 4, 5, 6, 10 or 20 employees were left off."