Paycheck Program Somehow Worse Than Previously Known

Written by SK Ashby

While the Paycheck Protection Program (PPP) overseen by the Small Business Administration (SBA) may have temporarily saved some jobs that would have been lost were it not for the program, it's increasingly difficult to believe it saved enough jobs to justify the amount of money we've spent on it.

But now there's another big problem with the program.

It's not clear if the "amount of money we've spent" on the program has actually been spent.

Data released by the SBA last week listed numerous loans that don't exist and others that were actually significantly smaller than listed. Much of the data doesn't even comply with PPP criteria and some loans suggest they were used cut jobs, not save them.

A Bloomberg News analysis shows that the data for Paycheck Protection Program loans totaling more than $521 billion released on July 6 are riddled with anomalies. Although the maximum PPP loan for a one-person enterprise is $20,833, more than 75,000 loans listing one job retained have higher amounts -- including 154 showing $1 million or more.

The PPP was designed to keep employees of small businesses on payroll during the pandemic. Out of almost 4.9 million loans, the number of “jobs retained” is zero for 554,146 and blank for 324,122. Seven loans list negative job numbers.

Conversely, almost a thousand entries show 500 jobs for loans under $150,000, which is mathematically doubtful given that the aid is based on 2.5 times a firm’s average monthly payroll. In 209 of those cases, it implies an average monthly salary of $4 or less per employee. Taken together, those figures call into question the job numbers in one out of every five PPP loans.

If tens of thousands of PPP loans were actually smaller than reported by the SBA, then where did the money go? Has it been spent at all?

Officially, the program still had over $100 billion in available funds remaining at the end of June, but do we know that's accurate? Couldn't the total of funds remaining be significantly higher if so many of the loans were incorrectly recorded?

The reverse may be true as well. Perhaps some lucky individuals or businesses received far more funding than they were suppose to. Maybe the money was spent, just not on who we think.

Speaking of which -- and in related news -- Reuters reports that some wealthy individuals and families have received PPP funds that were routed through their asset managers.

The companies - often referred to as “family offices” - approved for the forgivable loans from the Small Business Administration (SBA) included those that oversee money for the family that co-owns the National Basketball Association’s Sacramento Kings; the former manager of a multi-billion dollar hedge fund firm; and a serial Las Vegas entrepreneur.

The new data from the U.S. Treasury Department and SBA shows only that the loans were approved from the Paycheck Protection Program (PPP) but does not say how much was disbursed or if they had been returned or forgiven. Still, it was not always clear why the families found it necessary to apply for emergency cash, usually for less than $1 million, given the substantial funds available implied by having private investing vehicles.

“The PPP was meant for struggling small businesses who aren’t able to operate at normal capacity,” said Andrew Park, senior policy analyst at Americans for Financial Reform. “This is akin to dipping their hands into a charity jar.”

There are many messes the next administration will have the clean up, but this will be among the most significant.

In December (or more likely next year after Congress approves another delay), those who received PPP funding will have to detail what the funds were used for to justify having the loans forgiven or they will have to repay the loans.

Based on what we know including that the SBA's records are inaccurate, there's likely going to be instances where an innocent business is asked to pay back a loan they never actually received. There will likely be others that are allowed off the hook even if they didn't use the funds to retain any specific jobs. And those are just obvious possibilities that immediately come to mind.

We've allocated over $600 billion for this legal and financial quagmire that may be considered a write-off in the relatively near future. You have to wonder if the ongoing and uncontrolled outbreak of the coronavirus could ultimately result in more job losses than the Paycheck Program saved between April and June. I feel like that's not even a stretch to consider, but we won't know for sure until later this year or early next year.

For the cost of the PPP program, we could have just mailed a check to every American for two additional months and 100 percent of that would have actually gone into an average person's hand. The Paycheck Program has been distributed entirely through a series of middlemen from the government, to private banks, to owners and managers and then, theoretically, employees.