Congress Drops the Ball on Small Business Coronavirus Rescue

Another case of typical congressional carelessness.


The Payroll Protection Program, or the PPP, is the crown jewel of the Coronavirus Aid, Relief, and Economic Security Act's attempt to rescue small businesses from effects of the coronavirus pandemic. Unfortunately, the program has been a mess in its implementation and its results. This predictable failure is likely to distort and delay our economic recovery.

Here's the idea behind the PPP: The Small Business Administration, with the help of the Treasury Department, would issue hundreds of billions of dollars in low-interest-rate loans to small businesses. In theory, all small businesses with fewer than 500 employees qualified. Also in theory, if a business used 75 percent or more of its loan to cover payroll costs and keep paying workers for an eight-week period after the loan was granted, that loan would be forgiven.

In practice, things didn't work out as planned. First, the application process was a mess. Lenders kept changing the terms or decided they would only lend to businesses that already had an account with them. Many small businesses were thus left looking for lenders. Then, the SBA—an agency infamous for its terrible record helping small businesses after disasters—rejected applicants for all sorts of reasons, including not being able to jump through the agency-made regulatory requirements.

Data also reveal that some enterprises with far more than the maximum of 500 employees—many of them publicly traded—got large loans approved before many others could even get access to a bank to apply. Some large firms, including Ruth's Chris Steak House and Shake Shack, returned the money, but others have dragged their feet. Companies like these usually have plenty of access to capital elsewhere, which is not always the case with small businesses. The size of the loans these big guys got would make your eyes pop, especially compared with what smaller companies in direr straits got.

Meanwhile, a fair number of self-employed workers—who constitute 81 percent of all small businesses—could not get a PPP loan because in the eyes of the federal government, they don't actually exist as businesses.

Take science-based syndicated columnist and author Amy Alkon. As she told me via email a few weeks ago, because of coronavirus, she's had a big cutback in earnings. She explained, "I need to avoid just burning through my savings until I'm living in a tent under an underpass." Yet, she hasn't been able to get a loan with PPP.

The anecdotal evidence that PPP didn't make it to the right places is confirmed by several academic papers so far. The authors of a National Bureau of Economic Research paper titled "Did The Paycheck Protection Program Hit the Target?" find that the funds didn't flow to where the economic shock was greatest.

According to calculations by MIT's Lawrence Schmidt and Northwestern University's Dimitris Papanikolaou, the professional and technical services sector received the largest number of PPP loans—around $65 billion in total. This sector also has the highest fraction of workers who are remote and, hence, are least exposed to pandemic-related disruptions. They also reported that nonremote, lower-paid workers were 15 percentage points more likely to be unemployed compared with workers in sectors where working remotely is an option.

Using 2017 estimates of employment in firms with fewer than 500 employees, the professional and technical services sector received $12,500 per employee. By contrast, accommodation and food services, a sector hit much harder, received a mere $4,800 per employee.

Finally, while the PPP allows for loan forgiveness in theory, generous and easy-to-get unemployment benefits given to workers during the coronavirus response mean that many firms will have a hard time retaining enough employees to qualify for it. That will be an unwelcome surprise to those who received a loan under the lure of forgiveness.

The bottom line is that the PPP was poorly thought through, implemented, and administered, and even more poorly targeted—in other words, typical congressional carelessness.


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  1. And?

    Massie made the point before the bill was passed that you could give the average family of 4 $60k and still have money left over at least 100 tests. If you were going to spend the money, that’s where it would have made the most amount of sense.

    As is, the whole affair was pork on a scale never seen before, just like every bailout before.

    And most small businesses are still going to fall to shit, so it didn’t even matter anyway.

    Beyond the Covid response, beyond the riots, beyond even nixing the police, this was the defining moment of 2020 where the government screwed the pooch and the reverberations will be felt for decades afterwards.

  2. As a California-based small business owner, I am very grateful the PPP loan program was created. Quite simply, it has enabled us to keep our business going. Without it, we would have had to lay-off all our employees and close. Though I agree the application process in the early days of the program was crazy, I am impressed that this program launched a mere 7 days after it was enacted. That’s never happened before, and is a tribute to the SBA and the US Treasury Dept. It was amazing to see thousands of banks and businesses instantly come together. Despite your criticism of the program, 4.5 million small business have received PPP loans, and 85% of the loans went to small businesses who need this money the most. These are companies with small payrolls, so their loan amounts were less than $150,000. It’s noteworthy that the industry that got the most money was healthcare. This program kept our healthcare industry afloat at a time when people were terrified to see their doctors or go to hospitals for fear that they may get Covid. Additionally, a smaller yet vital sector that received 73,000 loans totaling $11B was educational services. At a time when schools were closed and were trying (and for the most part failing) to make online education work as hoped, education tutoring centers, software providers, suppliers and training companies were able to continue to operate without going out of business. We need these companies NOW and in the future to support our school districts and their students. Thanks to PPP, this industry sector is still functioning to support their needs. The revisions made to the PPP program address the market realities of our “post lock-down” world, by extending the period of time we can spend this money and still qualify for loan forgiveness. So with respect, as a small business owner who is living the reality of operating a successful company that suffered a 90% loss in revenues due to Covid, this program has been a lifeline for us.

    1. This reads like a canned response.

      1. It’s been a lifeline for them, doesn’t matter how many trillions of dollars it cost.

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    2. I’d be curious to see the breakdown of that $11B for educational services. With public schools closing, the demand for educational services was higher than ever. A family member of mine teaches online fulltime for VIPKIDS and Outschool. She has been busier than ever with classes since March. Software provider, supplier, and training companies, in general, have been doing very well in the current climate. The PPP, as I understand it, is supposed to shore up businesses while demand (or legality) for their services is down. That doesn’t seem to describe online educational services.

      1. I own a large tutoring center. Our sales were off 90% for the period March 15 – June 15. Our tutoring center was Shirley down by the lockdown. We do offer online tutoring but there were not many signups as parents stopped spending money on stuff given the economic and employment fear.

        1. Interesting… and don’t call your business Shirley.

        2. It’s affected everything. Advertising, education, healthcare, and many other industries you would think might be insulated from lock down effects are cutting jobs and losing revenue. We will lose $8T in economic activity in the next decade over this.

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  3. Defund the government.

    1. The lockdown already has defunded the government. So they printed more money! :). But seriously, at the state and local level the lockdown has impacted government tax revenue, big time. Lots of budget cutting ahead.

  4. If you can document that an employee who was laid off and is collecting unemployment has refused an offer of rehire (do this via email to create the trail), then that employee’s absence from your payroll is not counted against loan forgiveness.

    Do your homework, guys, before you write misleading stuff!

  5. “The bottom line is that the PPP was poorly thought through, implemented, and administered, and even more poorly targeted—in other words, typical congressional carelessness.”

    Actually, it was a brilliant move by the statists. Combined with the ‘extra’ $600.00/wk in unemployment benefits, which is $15.00/hr, this program will result in the destruction of thousands of small businesses. As you pointed out, employees will not return for less of a wage. The requirement to spend 75% on wages means the business cannot pay rent, utilities, etc, and will still go under. It is necessary to eliminate small businesses before you institute fascism. You cannot control the population through the corporations until most employment is through the corporations.

    Just for the record; if they really wanted to “protect paychecks”, all the money would have gone into increased unemployment benefits through the existing bureaucracy.

  6. As-if loaning other peoples money was any business of the federal government. Did all the congressmen get a part-time job as loan officers or what?

  7. I’m going to go ahead and come out and say it.

    Why is it the Federal governments job to bail out state and local governments who decide to lock down their economies and ruin small businesses?

    I mean, if that is their job it seems like it would be a better idea to stop state and local governments from shooting their economies in the head. Otherwise, all we’re doing is taxing non-retarded states to pay for the retardation in these places.

    If the Fed can’t lift these ‘lockdowns’ themselves I really don’t see much of a point in expecting them, and by proxy all of us, to pay for them. That’s a bottomless well, folks.

    Of course, like any crisis, the Fed’s won’t waste it. They’ll just cut checks for a few trillion we don’t have. This would even make Keynes blush.

    1. Pretty much agree with this. Though I don’t think the economic losses were caused completely by lock downs, they certainly made things much, much worse.

      We were headed for some amount of economic pain regardless, but further government intervention will make things worse in the long run as it stifles creative destruction and brings in a whole host of problems related to debt-funded spending.

      But hey, only a heartless, Darwinist, libertarian could be so cruel as to not want to help struggling businesses with other peoples (mostly our children’s and grandchildren’s) money.

      1. Of course there would be economic losses, that much is certain. But outlawing business is something else.

        This isn’t like a hurricane, although one can certainly compare disease to a natural disaster. By paying out for self-inflicted economic damage, it in essence writes a blank check to the States to enact any totalitarian wet dream they can imagine and damn the consequences.

        What, people think switching to electronic voting because of COVID is a good idea? Guess Russia disappeared in just four short years, but I for one will not be surprised when those electronic votes are compromised. Either by some foreign group, or more likely by some internal group.

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