4 Reasons Small Businesses Are Struggling With the Paycheck Protection Program

Unclear terms, unrealistic loan forgiveness, a site unprepared for launch, and a bottomless demand for cash


Countless small businesses have been hit hard by social distancing measures meant to slow the spread of COVID-19. Lawmakers say that helping those businesses is a paramount priority. But many companies hoping to cash in on the Paycheck Protection Program (PPP)—a federal measure offering $349 billion in loans for small businesses—have been disappointed in recent days. The program has struggled to take flight amid a series of glitches, some of which will be temporary, as government workers overcome the difficulties involved in quickly creating such a massive project. Some will not be.

1. A site unprepared for launch

The Small Business Administration (SBA) loan application platform launched Friday. By Monday, it had crashed. Its availability has ebbed and flowed since the site went online—which isn't terribly surprising, considering that Congress approved the stimulus bill just a week prior. But banks have said they don't fully understand the PPP's terms, which were handed to them on Thursday evening, about 12 hours before they were to start fielding applications.

Those applications may take over an hour to process, and the SBA's platform sometimes asks for information not required by PPP, thus incorrectly disqualifying eligible applicants. What's more, as of Monday, banks had not yet been provided with the documentation needed to close out loans. Some banks—including the colossal Citigroup—still weren't accepting applications as of Wednesday afternoon.

"If the government wants to give us a 100 percent guarantee that, regardless of what documentation they get, they are going to pay us within a certain time frame—that would change it significantly,"Mike Martin, the chief executive officer of Western Bank, told the Silver City Daily Press. "Every bank that I know of will say, 'This is how many of these loans that we can do based on the risk parameters.'" 

2. Banks afraid of new risks

Those risk parameters appear to be either too high or too ambiguous for some lending institutions. After the floodgates opened, several banks began turning down potential loanees if they didn't have a previous lending history with the bank—even if the business owner had decent credit. The move eliminated several businesses who otherwise qualified for the PPP. Bank of America was perhaps the most high-profile example of this: After a swift backlash, the banking behemoth eventually lowered the barrier, but it is still rejecting applicants who have a lending history with another bank.

That pickiness drew criticism from the SBA, which reminded banks that taxpayers bailed them out to the tune of several billion dollars just over a decade ago. Some institutions "that had no problem taking billions of dollars of free money as bailout in 2008 are now the biggest banks that are resistant to helping small businesses," Joseph Amato, the SBA Nevada district director, argued in the Monday PPP teleconference.

3. Untenable loan forgiveness terms

Businesses that receive loans can have them forgiven. The government has forced them into an economic collapse, the thinking goes, and thus they are entitled to compensation as they attempt to survive this period of social isolation.

But there's a catch, and it's a big one. Business owners must spend 75 percent of their loan on payroll expenses should they want their debt washed away. That's a change from what Congress approved: Lawmakers voted for a 50 percent payroll requirement, but Treasury Secretary Steve Mnuchin quietly changed the terms after the fact.

The stipulation was, in theory, a way to incentivize bosses to keep their employees employed. But how business owners are supposed to do that when they have no business remains unclear. While labor is certainly a sizable portion of any entrepreneur's expenses, there are several other costly measures that any enterprise must address, such as rent. 

In other words, successful applicants will be faced with a difficult choice. Do you lay off your workers—who can apply for unemployment—and pay to keep the lights on, knowing that you'll be digging a financial hole for yourself that you might not be able to climb out of? Or do you pay your employees when there is no work to be done, so you can come out of this debt-free? One wonders the point of emerging debt-free if you no longer have a building from which to operate. 

4. A bottomless demand for cash

Before the PPP applications even hit the web, Mnuchin implied that banks might deplete the $349 billion in loans without helping every eligible business owner. That seems ever more likely as applications mount at breakneck speed. 

As of 2018, there were about 30 million small businesses in the United States. Applicants can request up to 250 percent of their current payroll, which almost certainly ensures that the funding will run dry. On Monday, Bank of America's 177,000 applications appealed for $32.6 billion in funding—10 percent of the total federal program. Wells Fargo hit capacity the same day.

Mnuchin reiterated his push yesterday to add $250 billion to the program, but Democrats blocked that request today. Sens. Ben Cardin (D–Md.) and Chris Van Hollen (D–Md.) said that they wanted to come to a bipartisan consensus before moving forward, pushing for increased funding for hospitals.

The temporary standoff will almost certainly result in a rather expensive compromise. On Wednesday, for instance, Democratic leaders seemed to agree that they could find $250 billion in additional loans to small businesses, but only if the GOP agreed to tack on $100 billion for hospitals and $150 billion for state and local governments.

NEXT: No, 5G Is Not Spreading Coronavirus. That Doesn't Even Make Sense.

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  1. Business owners must spend 75 percent of their loan on payroll expenses should they want their debt washed away.

    Is there a link for that claim? I was under the impression it was 75% on payroll, rent and utilities.

    1. You expect citation at Reason?
      You new here or what?

    2. “However, not more than 25 percent of the loan forgiveness amount may be attributable to non-
      payroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage
      interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping workers paid and employed. Further, the Administrator and the
      Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount 75 percent of which is
      equivalent to eight weeks of payroll (8 weeks / 2.5 months = 56 days / 76 days = 74 percent rounded up to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection. SBA will issue additional guidance on loan forgiveness.”–IFRN%20FINAL_0.pdf

    3. Use the official sources, alas, the 75% figure is correct.
      Most small business will be screwed by the change!!
      No retail or restaurant business has a 75% payroll cost. 50% works, but 75% is very dumb if you want the business to survive.

      1. Why would you think this program is designed to help small individual owned business survive?
        This is another ploy to destroy individuals and force everyone into working for wages at large, and therefore more government controlled, companies. For details, see the healthcare industry and the healthcare insurance industry.
        For background material, review fascism in Italy.

        1. BINGO!

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  2. “Majority Leader Mitch McConnell, responding to a request from Treasury Secretary Steven Mnuchin, hoped to quickly pass a bill to replenish a small business aid program with an infusion of $250 billion in federal funding.

    According to Democrats, the GOP bill fell short by not providing adequate funding for small business owned by ‘groups that have traditionally had difficulty obtaining loans,’ as well as hospitals, and state and local governments.
    Sen. Ben Cardin (D-MD) introduced the Democratic counterproposal, which increases spending to $500 billion – allocating $100 billion to healthcare facilities and $250 billion on state and local governments. Cardin, who serves on the Senate Small Business panel, also wants to waive work requirements for food stamps while increasing food stamp benefits.”

  3. “Lawmakers voted for a 50 percent payroll requirement, but Treasury Secretary Steve Mnuchin quietly changed the terms after the fact.”

    Since when does a Treasury Secretary have the power to rewrite federal law?

    1. Take Billy Binion assertions with an entire salt mine

    2. Since Congress gave the regulatory state the power to legislate. Remember, “we have to pass it to find out what’s in it”? That’s a true statement, unfortunately.

      1. This is a grossly repeated characterization of context.

    3. “Since when does a Treasury Secretary have the power to rewrite federal law?”

      I have no idea, but if the effort somehow throttles the FREE SHIT movement, I’ll hope it’s legal.

    4. I don’t see a 50% requirement in the statute.

      1. Here’s what I see:

        The loan is 2.5 times the average monthly payroll. CARES Act Sec. 1102(a)(2) (creating “(E) Maximum Loan Amount”). Let’s say that average is $100. So the loan is $250.

        The money has to be spent over 2 months (actually, 8 weeks). Sec. 1106(a)(3) (defining “covered period”); Sec. 1106(b) (forgiving certain “costs incurred and payments made during the covered period”).

        Salaries may be reduced by up to 25%. Sec. 1106(d)(3)(A).

        So, to get full loan forgiveness, the employer must spend at least 75% of $100 on payroll in 2 months. That’s $150, which is 60% of the $250 loan.

        That’s not 75%, but it’s also not 50%. I’m not sure where the 50% number is coming from.

  4. I don’t know how Mnuchin’s change of the terms is legal. Even under Chevron deference, if it is clear from the legislation, no deference.

  5. That’s a change from what Congress approved: Lawmakers voted for a 50 percent payroll requirement, but Treasury Secretary Steve Mnuchin quietly changed the terms after the fact.

    How the hell is that legal?

    1. He’s a Trump appointee, so he has the moral authority to do that. Are you questioning Dear Leader’s appointments?

      1. Stuff your TDS up your ass. Your head is asking for company.

        1. Sevo is a great example of a recih winger. Who cares if it is legal if it supports our agenda!! Fascist totalitarians. TDS = Trump Delusional Supporter

          1. That was a good one!

          2. Hahaha, Jesus Christ you people are fucking stupid. Set up another straw man there buddy. The next one might burn longer.

    2. I note you neglected to mention that the link Binion provided was a twitter shat by Amash, who voted no on that legislation. So even 50% was unacceptable to him. Therefore who cares.

    3. Because COVID-19!!!

      It might save one life!!!!

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    1. The problem is keeping people on payrolls at some level, so they aren’t out of work for months after this is over and companies are facing the enormous costs of rehiring. Of course, like every govt response, it is written for the special interests and big donors to pick winners

      1. It’s like the whole thing is set up to make the economy tank. If I’m running my small biz, I’ve ALREADY let my employees go because government has forced me closed (WA). As soon as the feds announced $600/wk + state benefits, that became a no-brainer. Now they are making like $21/hr while not working until July. They will be fine. However, if I’m looking at opening up in May or June, how am I possibly going to get anybody off the couch for the regular $16/hr? Government is giving them the incentive to take spring off! Come July a lot of people are going to try to go back to work to find those places aren’t even open. Then what? More unemployment benefits! And more and more of the people become dependent.

        1. We are borrowing to buy inventory we don’t need, hoping our buys are sufficient to keep our suppliers open, healthy and capable of delivering quality goods.
          This disaster (and I’ll be pleased if it doesn’t get worse than that) has been precipitated by tin-pot dictators, drunk with power, answering the PANIC!!! flags of JFree, Hihn and the rest of the lefty, whining, assholes hoping that dear daddy can save them from a case of the flu, and fuck the entire economy; so what?

        2. $15/hr.? Are you in Seattle?

          1. Clark County, WA just across the river from Portland, OR. We think Seattle’s ideas are all super and try to emulate them :/

        3. The real issue is that the vast majority of the people involved have never had a real job, let alone actually ran a business. As you correctly point out, the government forced businesses to shut down; no business owner can keep people on payroll while shut down for an unknown and unknowable amount of time.
          Then they wrote the legislation in such a way that people taking unemployment make more unemployed than the did when employed! That was real genius right there.
          The bottom line here, imv, is this: the business owners, those with their own futures on the line are, are being told to do things to assure their own failure.

        4. I really don’t understand this idea that people basically don’t want to work. Most people I know want to go back to life as we know it including work. The idea that people want to be coach potatoes is unrealistic. Yes, you can find some but they are the exception. I had a coworker who was a card carrying Communist, they were also the hardest working person I knew. People work because its is part of their life.

          1. Agree….people have no desire to be indolent. They want to work.

            1. You don’t know many young people, do you?

              1. For sure. Young people are, by and large, terrible in the workforce. A raise + extended vacation is like a dream come true for them.

              2. I know plenty and most work very hard. What is it with old people. Every generation thinks they had it the hardest. Well I for one think I had it pretty good. I would not choose to start over again.

            2. Don’t let individuals like Sevo fool you, he’s homeless you know.

          2. I’m pretty sure that a whole lot of people will simply take spring off when offered a $5/hr raise to NOT go to work.

      2. Of course, like every govt response, it is written by people who have never run a business and are technologically challenged, and thus for the special interests and big donors to pick winners.

      3. Exactly right. No one talks about how the bill exempts businesses with over 500 employees from mandatory sick leave pay.

  7. 1. It’s a government-run program.
    2. It’s a government-run program.
    3. It’s a government-run program.
    4. It’s a government-run program.

    1. What? Are you not a fan of unlimited free stuff? If the government can destroy value with the swipe of a pen by what logic can they not simply will value back into existence with another swipe of the pen? Perhaps there is an entire economic system that could be created from such a concept.

      1. Newsom has this familiarity with business:
        He and a Getty offspring opened a couple of restaurants in SF and Squaw Valley; of course, they were both involved in managing them, right? RIGHT?
        When Newsom flips the ‘economy’ switch back to “ON”, why, of course, everything will start humminggggg.a;k]atpk a]ekl[e[y]\\yo=wotgl-PJNTANKD]A4YAE238-RYN0-tiek……..

        And grease-ball will blame it on a disease which looks likely to kill Californians in amounts somewhat less than auto accidents…
        No, NO! Not his idiotic tin-pot dictator decisions! NO, NO!

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  9. Odd how banks have zero problems when it comes to sending them billions to bail them out time after time? That process is silky smooth. As someone in the cannabis industry I knew we’d be left out of this money. Odd how the state and Feds take out tax dollars every month no problems there. It is illegal dirty drug money right up until we walk across the tax revenue offices doorway threshold and by the stroke of some magical power it is all washed and clean and ready for some politician to spend. Oh and I am sure it goes right into a bank account as well, something we can’t do with it ourselves, being dirty drug money and all.

    1. Yep. All government is smoke and mirrors. Sure it is legal, but good luck navigating the restrictions…

  10. So where are all the KKK in Tricorn…err I mean TeaBaggers gloating that the TrumpCare for Business site crashed?

    Oh, I now remember why they are not gloating, the president isn’t guilty of being Black.

    1. They spent all of 12 hours developing the site, so it’s no surprise it is failing. I did get my application processed very rapidly, however.

      The Obamacare site was developed over many months, it failed much worse, and is still a nightmare.

    2. I would expect nothing less from a government created website.

      Oh, and fuck off racist.

  11. “a;k]atpk a]ekl[e[y]\\yo=wotgl-PJNTANKD]A4YAE238-RYN0-tiek”
    Most intelligent thing you’ve ever said.

  12. What good is a program that can’t be used? It looks good for them politicians!

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