On April 3, the Small Business Administration launched the PPP with $349 billion. The SBA’s most recent report says that through April 16, the agency approved nearly 1.7 million loans through 4,975 lenders, depleting the entire fund. According to SBA Administrator Jovita Carranza, the agency “processed more than 14 years’ worth of loans in less than 14 days.” By any measure, that’s lightning speed. And now a new tranche of money is in the pipeline.
It turns out that just 1.6 percent of total PPP loans were for $2 million or more, coming to a total of about $95 billion, according to the SBA — some of those loans presumably going to large firms that weren’t the legislation’s intended beneficiaries. Treasury Secretary Steven Mnuchin has announced that the government will perform a full audit of any company with a loan of $2 million or more, and companies that took loans they didn’t need could be “subject to criminal liability.” A number of companies have already repaid their loans.
For the most part, these PPP loans appear to be actually reaching the small businesses as intended. Loans for less than $150,000 account for 74 percent of total loans — and 96 percent were for less than $1 million. The average loan was $206,000.
But is the money helping? As the former chief executive of CKE Restaurants, with about 200 franchisees, and a former director of the International Franchise Association, I’ve been hearing from a lot of nervous small-business owners since the beginning of the economic shutdown.
While the Cares Act was pending in Congress, most were concerned about whether their business would qualify for the loans. Once it passed, covering a broad swath of small businesses, you could almost hear the collective sigh of relief. But something close to panic set in when many businesses were unable to find a lender willing to make a PPP loan. It seemed that the bigger the bank, the more difficult the process. This concern also passed fairly rapidly when community banks — and some larger banks — stepped up and started making the loans.
Unfortunately, not all small businesses received loans before the program ran out of funds. A James Beard Foundation survey of more than 1,800 owners of predominantly small and independent restaurants found that while 41 percent of the respondents had been approved for a loan, nearly half (45 percent) of those approved had not received funding. After an inexcusable delay by House Speaker Nancy Pelosi (D-Calif.), the Trump administration and Congress added $310 billion to the PPP to address the demand.
One looming problem: the lack of certainty about how businesses can qualify for loan forgiveness. For example, how much of the loan proceeds must employers spend on payroll, and over what period of time? But there is a sense that the Trump administration recognizes the problem and will soon issue regulatory guidance to clarify the requirements.
With the PPP loans made so far, and with more money being disbursed, thousands of small businesses that would otherwise have closed permanently will remain open, their employees either still at work or more confident that their employer will be in business and rehiring once the crisis abates. According to Mnuchin, the PPP has already benefited 30 million workers, and the administration expects “it will be another 30 million workers by the time we get done with this, so close to 50 percent of the private payroll.” Having these businesses and jobs intact will help smooth the country’s return to economic strength.
One more piece of good news on the restaurant front: The dramatic sales declines of a few weeks ago seem to be waning. When the shutdown began, restaurant franchisees I have spoken with were complaining of disastrous sales declines in the 30 to 40 percent range. Over the past couple of weeks, those complaints have dropped to more survivable 5 to 15 percent declines. As the covid-19 crisis continues, consumers may become increasingly comfortable with the safety of drive-through, curbside or delivery service. But franchisees tell me that they attribute the improved sales to the government checks that have gone out to help individuals in recent weeks. Even if temporary, this is a much-needed lift.
In the long term, government intervention is no substitute for the economy. The best way to speed the recovery would be a return to policies that encourage private-sector investment, growth and work. The Cares Act was designed to make a short-term economic stop sustainable and a soft landing possible, not to permanently change the way the United States does business. The good news is that it appears to be working.