A popular small business loan program supported by the government to help companies that have suffered from coronavirus it has returned, with some fixes to previous defects in forgivable, low-interest loans, but also some of the same loopholes that may benefit larger operators than the parent and pop stores on Main Street.
Washington’s latest $ 900 billion incentive effort will fill the third-round funding protection program with $ 285 billion at a time when small businesses continue to struggle. It was adopted by Congress Monday night after months of political negotiations. There is another question as to whether President Donald Trump will sign him after the president released a video on Tuesday night criticizing the COVID-19 aid bill.
The biggest difference in the third round? Companies that have previously borrowed from the program and spent the funds are entitled to make a second loan. The so-called “PPP loans for the second draw” were not part of the first two rounds. The government has also added new restrictions to limit the amount of money earmarked for larger companies or those who do not need public assistance where private funding is available.
All this, government guard dogs who followed the PPP I say it is improved, but the latest round, like the first two, will not be without fraud.
“I think he’s more likely to go to the companies that need it the most, because the abuse in the first two rounds has been well publicized,” said Steve Ellis, who is chairman of common sense taxpayers. “But it’s a large amount of money and there’s no guarantee that it won’t be taken advantage of by individuals and companies that shouldn’t get it.”
Here are some of the gaps that the government has closed, narrowed or left open in resuming the program:
- The government capped loan lending rates for the second time at $ 2 million, down from $ 10 million. But, as in the past, the so-called affiliation rule is abandoned, which means that two or more separate divisions of the same company can each borrow $ 2 million each, as long as their operations are separate. This will probably allow restaurants, hotels and other businesses in the chain, again, to borrow more than the individual ceiling.
- The government has reduced the number of employees a company could have to 300 from 500. But it has also expanded the types of companies that may be eligible to avoid this rule. For example, like restaurants and hotels, news organizations with a total of more than 300 employees are eligible to borrow from the program as long as they do not have more than 300 employees working in a single location.
- Also new in the third round of PPP: state-of-the-art cooperatives and Hollywood agents. Residential cooperatives were barred from receiving assistance for small businesses in previous rounds. In addition, the government has set aside $ 15 billion for smaller performing arts organizations fighting for survival, but has left the door open for at least some of the money to be captured by talent agencies representing performing artists.
- Unlike the first round, companies have to show their low business at some point during the coronavirus pandemic – but only over a three-month period. So if a business struggled at the beginning of the pandemic, but six months later goes well, it will still be eligible for the third round of the PPP.
- Public companies are specifically prohibited from obtaining new PPP loans. But venture capital firms, private equity firms or other deep-pocket investors are still eligible.
Caroline Ciccone, executive director of Accountable.US, which has criticized the Wage Protection Program, calls the exclusion of public companies as well as lowering the employee ceiling to 300, a significant improvement. But she says there is still a big gap between what most people think is a small business and a company that has 300 employees.
The new round of money sets aside $ 25 million for a federal agency that promotes minority-owned businesses and another $ 15 billion that can be operated by community or minority-owned banks. However, this is fading compared to the total fund of $ 285 billion. Studies in previous rounds have found that companies owned by minorities did not gain equal access to the PPP loans.
Another potential problem is that the updated program does not yet have the basic guarantee that is part of the typical US Small Business Administration loan process. Banks are usually liable if they grant a loan that is clearly against the rules. Banks had asked the SBA to relinquish this responsibility in the first two rounds of the PPP, but the new rules Washington wrote for the third round specify that banks cannot be held liable for loan fraud.
Both Ellis and Ciccone said this break for banks could be a problem, given that we now know there was widespread fraud in the first two rounds of the program.
“The argument is that we need to get the money out as soon as possible,” Ciccone told Accountable.US. “But look at what happened in the early waves of this. There have been tens of billions of dollars of fraud. At the very least, you should keep the very limited verification standards that are normally in place.”