Big firms were first in line for PPP loans
NEW YORK — Ever since the U.S. government launched its emergency lending program for small businesses April 3, there have been complaints that bigger companies had their loans approved and disbursed more quickly.
There is now evidence to back up those complaints.
An Associated Press analysis of the Small Business Administration’s $659 billion Paycheck Protection Program shows that nearly a third of the loans approved in the program’s first week ranged from $150,000 to $10 million, the maximum allowed. In a second round of funding that began April 27, such loans made up just 7.4% of the total.
The average loan size fell from $257,240 on April 10 to nearly $105,000 as of July 17, according to the SBA.
The PPP made very low-interest loans available to any business — or any franchisee of a business — with under 500 employees. The loans would be forgiven if most of the money was used to keep employees on payroll.
Larger companies with connections to major national or regional banks got priority treatment in the program’s initial phase, the data show, while many smaller businesses said they were turned away because the banks required them to have a checking account, a credit card and a previous loan to be considered.
Some small businesses submitted an application but then heard nothing. Many learned, not from their bank, but via news reports that the initial $349 billion in funding had run out in less than two weeks.
“The program was structured to take advantage of existing banking relationships that favored established businesses,” said John Arensmeyer, the CEO of the advocacy group Small Business Majority. “It was not designed for very small businesses.”
It’s not clear how many small companies have failed because of the pandemic. A survey conducted for the National Bureau of Economic Research found 2% of small businesses surveyed had shut down permanently in March, just after the pandemic hit the U.S.
In theory, that means 100,000 of U.S. small businesses closed their doors before the PPP was even launched.
Andrew Cao applied for a $72,500 loan for his digital marketing company with 10 full-time and part-time employees the day after the first round opened.
Cao submitted his application to Bank of America, where his company had been a customer for 10 years. Cao got two phone calls telling him he should submit his documentation, which he already had done, but could get no information on his loan.
“When we heard the funds were exhausted, I said, ‘Are you serious?’, we tried to do everything we could — we submitted papers, contacted the bank, and then nothing,’” says Cao, co-owner of Motoza, based in Austin, Texas.
Cao submitted an application through a small local bank two days before the first round ended. Motoza got its loan a few days after the program’s April 27 reopening.
The PPP, which still has more than $130 billion available, is a key part of the government’s coronavirus relief plan. It’s credited with supporting the job market when millions of workers have been laid off. The data released by the SBA July 6 does show that by June 30, 85% of the PPP loans had been for less than $150,000.