Some Arizona firms got PPP loans without noting job data
At least 1,460 Arizona businesses and organizations received emergency federal loans intended to save jobs during the pandemic despite reporting that their loans would save no jobs or not answering that question on their application to the government.
The Paycheck Protection Program funds distributed to these businesses totaled about $860 million, with 11% receiving at least $1 million, and six companies collecting between $5 million and $10 million.
Loan recipients were not required to report job numbers in order to receive a loan. But the lack of jobs information raises questions about the Small Business Administration program’s accountability measures. The loan application required businesses to agree to use the money to cover payroll or mortgage, rent and utility costs.
Bob Phibbs, a New York-based retail consultant who said he received a PPP loan for his businesses, called the program a “money grab.”
“The challenge is, it was rushed through. It was a lot of ‘hurry up and do something’ rather than vetting it,” Phibbs said. “It’s easy to throw money at it. Even the bankers when I went after my own (loan) were like ‘You know this thing is just open for fraud.’”
The cost per job saved for the Arizona companies that estimated the number of jobs that would be spared on their loan applications ranged from $500 per job to $3.75 million, according federal data. The median cost per job saved was $11,904.
Loans designed to aid businesses
Congress launched the Paycheck Protection Program this spring in response to a tanking economy gripped by the COVID-19 pandemic. The program, touted as assistance for small businesses, authorized private lenders to disperse 1% interest loans, with the opportunity for loan forgiveness if businesses used the funds appropriately.
But the program quickly drew criticism when large corporations began getting the money. A Government Accountability Office report concluded that some small businesses struggled to get loans because of constantly changing guidance from the government and some lenders’ preferences to work with their existing customers.
The report also identified the potential for fraud, recommending that the Small Business Administration address holes in the system. “The limited safeguards and lack of timely and complete guidance and oversight planning, have increased the likelihood that borrowers may misuse or improperly receive loans proceeds,” the GAO said.
While applicants did not have to report employment statistics to secure a loan, they will have to show lenders how many employees they have and how much they paid them in order to get their loans forgiven, a Small Business Administration spokesperson said in an email.
More than half of loan recipients surveyed by the National Federation of Independent Businesses are expecting their entire loans to be forgiven.
Isaac Boltansky, director of policy research at Compass Point Research & Trading, said that if companies retained zero jobs then their loans won’t be forgiven.
Boltansky said while the loan program is far from perfect, it did succeed at quickly injecting more than $500 billion into the economy.
He said companies were given flexibility in complying with the program’s requirements because parts of the country had shut down to slow the
spread of COVID-19.
“There was no utility in some of the recipients hiring people because if you were in New York City, restaurants couldn’t open,” he said. “That’s why Congress provided more flexibility.”
Database shows recipients
The federal government this week released a database of loan recipients that received at least $150,000.
According to that data, more than 11,326 small businesses, large companies, casinos, and nonprofits in Arizona received an estimated $7.08 billion.
The data do not reveal the exact amounts given to each entity, instead loan amounts are broken into five broad categories.To estimate a total figure, The Arizona Republic averaged the lowest possible dollar amount and the highest. The largest loans ranged from $5 million to $10 million.
Most Arizona business reported retaining hundreds of jobs, equating to an average of roughly $18,500 per worker.
Entities receiving that loan amount but reporting no job retention included a child care company, a corporation that operates Jack in the Box franchises, a finance firm and a temporary staffing agency.
These could, however, be reporting errors.
For example, in the government data Cannon & Wendt Electric Co. listed zero jobs retained. But company President Shane Snyder said that was incorrect. The firm’s entire loan had covered wages and benefits.
“It is actually closer to 400” jobs saved, he said. “We haven’t decreased manpower. We’re still running our 400 people or so.”
He said he assumed his lender, UMB Financial Corp., didn’t report to the government his employment information.
Most Arizona recipients who got loans through UMB reported no job retention in the database.
UMB Financial did not immediately respond to a request for comment.
Phibbs, the retail consultant, said despite the accountability issues the program has been a “lifeline” for a lot of small retailers. And even if they don’t get their loans forgiven, a loan at 1% interest goes a long way to helping stay in business, he said.
“There were a lot of small retailers that if they hadn’t gotten it, they wouldn’t have been able to reopen in June,” Phibbs said. “I’m thinking of the old adage of ‘walk a mile in my shoes.’ We don’t know what every individual business is going up against.”