Last week, countless small businesses across the country discovered that the government loans they were promised to stay afloat during the COVID-19 crisis were handed over to wealthy corporations before they ever saw a dime.
Those small businesses are the backbone of the American dream, offering immigrants and low income Americans a path to financial independence and success. But without critical aid, the economic stress from this crisis threatens to force many of these ventures – and all the people they support – underwater.
The Paycheck Protection Program (PPP), part of Congress’s latest Coronavirus relief package, was designed to give mom-and-pop businesses a lifeline during a time when social distancing enforcements have significantly reduced or eliminated customers. Although this loan program is intended for small businesses, several corporations that maliciously received these loans have market values over $100 billion dollars, and others are hotels and large chain restaurants like Potbelly and Shake Shack. While these allegedly “small” businesses pad their bottom lines, few of the independent struggling local businesses that needed the emergency capital have received nothing.
To ensure that needed cash would benefit local communities the PPP specified that the loans were intended for businesses with fewer than 500 employees. Despite this, it was reported that 17 companies with more than 500 employees collectively received upwards of $143 million dollars from the small business loan program, thanks to a loophole that specified 500 employees per location instead of in total. Although Shake Shack and several other large public firms have returned the loans they secured, that doesn’t alter the fact that they never should have received them to begin with.
That’s not the only way that big companies gamed the system. The ‘first come, first serve’ system that the PPP used disproportionately benefited the large corporations who already had a relationship with their bank and were able to get their loans fast tracked. If this program was properly designed with watchdogs to ensure things were operating as intended, these funds would be in the hands of the vulnerable Americans who were relying on it.
It’s not just the PPP. The entire Coronavirus relief package lacks critical oversight that lets large corporations suck up all the government money before working people and small business owners ever get the chance to ask for help. What few oversight measures that are in place lack the teeth to punish any abuse of these funds, setting us up for an ugly repeat of the utter failures of the 2008 financial crisis oversight panels. The process of disbursement favors banks hurrying to get it to customers whose documents are on file, while small businesses without a banking relationship stand in line, and the money disappears in a matter of hours.
With no serious accountability, it’s no surprise large businesses used these loopholes to quickly drain PPP of its funding. Those loopholes include large tax breaks for corporations and the wealthy. While Congress passed a necessary emergency bill to refill the coffers last week, the new package still lacks any significant oversight to curtail abuses, so what’s to stop large corporations from doing the same thing again?
If we want to get through this crisis, it’s essential that we keep Americans employed. People depend on wages, and consumer spending is the engine that keeps our economy running, so when workers have no capital to spend, the whole economy is at risk of coming to a catastrophic halt.
We can’t rely on wealthy folks or corporations to save small businesses through private philanthropy either. As a wealthy person myself, I can say that most wealthy people tend to invest their money rather than spend it, unlike most people who work for a living. And when corporations get extra cash they use it to enrich their shareholders or buy back their own stock, rather than raising wages or investing in new equipment – actions that would spur widespread economic growth.
Our recovery only comes when every working American has cash on hand to stimulate their local economy, and small businesses – ones that are actually small. Infusing an extra $310 billion dollars into the PPP is a good start, but a flawed system with more money is still a flawed system. Moving forward, it’s essential that our government ensures all further PPP loans are free of loopholes that corporations can exploit, and that needed cash is delivered to local businesses who will keep their employees productively employed.
— Dale Walker, San Francisco
Walker is a retired financial services executive. He currently serves on the Boards of Beneficial State Bank, the Graduate Theological Union, and Pacific Vision Foundation. He is an active member of Patriotic Millionaires.