Economy

Paycheck Loans Given To Corporations Flush With Cash

JM Ashby
Written by JM Ashby

The idea that the Paycheck Protection Program is a boondoggle is a hill I probably won't have to die on because the evidence is mounting.

The program, which has recieved two rounds of funding from Congress totalling more than $600 billion, ostensibly requires that companies applying for the supposedly-forgivable loans demonstrate that they actually need help, but a significant number of companies that don't need help were still approved.

In some cases, a review conducted by Reuters found that companies with enough cash reserves to last them through the end of the year -- even with zero revenue -- were approved for funds.

Some recipients, though, had considerable cash on hand. Forty-one publicly traded companies that got the emergency aid already had enough to cover basic expenses for two months or more when they applied for the funds, a Reuters analysis found — even if their revenue dropped to zero. Thirty had three months or more of cash. Six had enough to last at least until December, according to the review, which was based on average monthly operating expenses from 2019.

All told, these relatively flush 41 companies were able to secure $104 million in government aid, at a time when legions of smaller companies with little in their coffers were being turned down. Seventeen of the 41 recipients had market capitalizations of at least $100 million. [...]

Reuters examined the latest available financial information for 276 publicly traded companies that applied for the forgivable loans in the first round of the U.S. government’s Paycheck Protection Program (PPP) in April. The list includes companies tracked by data provider FactSquared through the end of April.

So, out of 276 companies for which records were available, about 15 percent of them were approved for large loans even though they didn't need it.

That leaves many who did demonstrate a need, of course, but we have no way of accounting for what the money was used for. Having the loans forgiven in the future supposedly depends on how the funds were ultimately used, but the rules for that are vague at best. This is likely going to be a legal if not financial quagmire.

There's no statistics on jobs retained by this program that we can currently point to as evidence that it's not a failure. We simply have no way of knowing and I'm skeptical that we will until the dust settles; until possibly the next session of Congress and future presidential administration that actually believes in accountability at the Treasury and Labor departments.

For the cost of this Paycheck Protection Program (PPP), we could have sent every American two more stimulus checks as large as the first one and that's an accountable program with a direct paper trail. Only 75 percent of PPP funds are required to be used for payrolls while 100 percent of a stimulus check goes to an actual person.

Maybe these programs don't have to compete with each other and we could continue doing both, but it's far less clear if the paycheck program is worth it and it needs significant reform if it's going to receive a third round of funding.

  • kingfrazer

    My wife and I own a medium-sized bookstore, which had to be shuttered for two months. (They’re doing shipping and curbside pickup–or, as my wife says, “Twice the work for half the money.” She applied for a PPP the first day she could (in the first round) and got nothing, while Ruth’s Chris Steakhouse got $10 million. Fortunately, they, and other flush with cash companies, got shamed into giving it back. But finally, yesterday, she got and submitted the paperwork for a $58,000 loan. This will keep us going a while longer. We were, as of yesterday afternoon, able to re-open to the public, but we’re not going to. It’s just too early and risky.

  • muselet

    Gollies, who could possibly have predicted that letting a band of grifters hand out large amounts of money without meaningful oversight could lead to corruption?

    https://youtu.be/SjbPi00k_ME?t=9

    Next time, send checks to individuals and be done with it.

    –alopecia