Personal Finance

The Paycheck Protection Program needs better oversight on how the money is granted, critics say

Key Points
  • While millions of small-business owners were shut out from the Paycheck Protection Program, large firms, including Ruth’s Chris Steak House and Shake Shack, were approved to participate.
  • Meanwhile, many entrepreneurs who applied still haven’t heard from lenders as to whether they’ve been approved.
  • Congress could draw tighter parameters, including prioritizing businesses with the least liquidity, as well as adding oversight of recipients, policy experts said.
US Senator Chuck Schumer speaks at media briefing with mayor Bill de Blasio on first death related to COVID-19 outbreak in New York CIty at City Hall.
Lev Radin | Pacific Press | Getty Images

Congress is hashing out the terms for the next package of federal loans for small businesses, even as millions of entrepreneurs still have no idea whether help is on the way.

The Paycheck Protection Program, a $349 billion federal forgivable loan measure, ran out of money last Thursday just two weeks after starting.

While the initial round of PPP funding was supposed to be granted on a first-come, first-served basis, even early birds missed out on the cash they desperately needed.

"I've still heard nothing from Chase," said Christina Dorando, founder of Cresthill Academy in Hoboken, New Jersey.

More from Personal Finance:
Resist the siren call of cashing out your 401(k)
Get the best of both stocks and bonds
Can't keep up with insurance premiums?

She applied for the paycheck loan through JP Morgan Chase when the window opened on April 3 and, more than two weeks later, she still has no idea whether the funding is on its way.

Cresthill, which has five locations in New Jersey, had 96 employees prior to shutting down in mid-March as the coronavirus spread through the Garden State. Today, it's down to a skeleton crew of 14 employees, whom Dorando is paying from personal savings.

The daycare didn't charge clients tuition for April, so Dorando has had to create other streams of income, including sales of activity kits for toddlers and prepared meals, to help the business manage.

Administration official: Paycheck Protection Program negotiations on track
Administration official: Paycheck Protection Program negotiations on track

"We're doing the math, and every day we're just losing money," she said. "We're taking it day by day, and we're hoping the PPP loan pot will be refilled by the end of April."

But even if Congress pours money back into the program, questions remain for businesses in the queue.  

"These people thought it was a done deal and that they were just waiting for funding," said Brian Streig, CPA and tax director at Calhoun, Thomson & Matza in Austin, Texas. "The people at the bank branches don't know what's going on, either."

A rapid rollout

A worker for United Parcel Service Inc. (UPS) makes deliveries on a street with closed stores in the Borough Park neighborhood in the Brooklyn, New York, April 7, 2020.
Stephanie Keith | Bloomberg via Getty Images

The speed with which the loan program was drafted and funded helped contribute to its imperfections, including leaving many small businesses shut out, experts say.

"This program was set up in two weeks," said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget. "Doing it this quickly doesn't let you target it as you'd like."

For starters, banks prioritized applicants who had lines of credit or business bank accounts with them, and lending institutions had different requirements.

"One wants a wet signature, while others are using DocuSign," said Eric Hjerpe, CPA at Hjerpe & Tennison in Bloomington, Illinois.

Rubio: Some companies were approved for loans that shouldn't have been
Rubio: Some companies were approved for loans that shouldn't have been

Further, the funds weren't available to everyone at the same time. While small businesses could apply as early as April 3, the earliest independent contractors could sign up was April 10.

Finally, a loophole in the law allowed a number of major restaurants, including Ruth's Chris and Shake Shack, to apply.

"The basic language says that a business can't have more than 500 employees and be eligible, but a special clause [exempts] a business concern that employs no more than 500 employees per physical location," said Gardner. "You knew it was going to have this implication, that it would be easy to forecast that these large chains would masquerade as small businesses under these terms."

Added restrictions ahead?

While lawmakers are figuring out the next funding rollout, it remains to be seen whether they will apply new restrictions on who qualifies.


Changing the application process could hurt small businesses that are still awaiting the word from their bank.

"Assume all of these applications are sitting in the queue," said Hjerpe. "If they change the application rules, does everyone have to resubmit? That's an even worse logjam."

If Congress were to revisit the language, it could call for higher priority on small businesses with little liquidity or who need the money the fastest, said Goldwein.

"They should have said the program is open to everyone, but first in line would be those with fewer than 50 people, while chains are last because they have the most liquidity," he said.

"I can understand why you'd apply if your revenue went down 20%, but you shouldn't be in the front of the line," Goldwein said.

Further, there needs to be greater oversight and transparency from the Small Business Administration on who ultimately receives funding, Gardner said.

"A lot of small business owners are clearly disillusioned about the way they've been treated and we understand why," he said.