Menge: A Bailout that Doesn’t Bail Out
By Margaret Menge
What if the government decided to give a massive amount of money to small businesses to help them survive a pandemic but forgot to include anything to make sure the money was really going to businesses that needed it?
It would seem like a fairly big oversight.
But that is what has happened.
Through the CARES Act, the federal government set up two stimulus programs – the Paycheck Protection Plan (PPP) and the Economic Injury Disaster Loan Emergency Advance (EIDL).
The purpose of the PPP was to keep Americans employed – to give employers enough money to keep paying employees. The maximum loan amount is $10 million.
The second, the EIDL, was intended to provide a quick $10,000 to business owners to keep them afloat. By law, they were supposed to get the money in three days.
But neither application asked business owners to demonstrate that they needed the money, and neither asked whether the business had closed due to the pandemic.
Take, for example, a pizza chain in Bloomington called Pizza X. They have five locations, and none have dining rooms. They’re carry-out and delivery only, so all have remained open. But the owner, Jeff Mease, still applied for a PPP loan (free money, as the loan will be forgiven, in most cases) and got it. Mease announced on Facebook that he was giving his staff a 75 percent raise, so it seems evident that the PPP loan was extra money, not needed to fund the business and keep people on the payroll. (His company also owns a popular restaurant in town called Lennie’s, but those employees were all furloughed.)
Jason Arp, a city councilman in Fort Wayne and former banker who now owns and manages several properties — office, retail and apartments — said his accountant came to him early on and asked if he wanted to apply for the PPP.
“I said, ‘I don’t think I really need it.’ He said, ‘I don’t think they’re looking at that,’” he told The Indiana Policy Review.
Arp says he decided not to apply as he hasn’t been affected: All of his tenants are still paying rent.
The owner of a manufacturing firm in Indianapolis that wasn’t shut down, had a strong March and is looking to hire three more employees, applied for the PPP through the National Bank of Indianapolis and got $1.5 million. Lee Crannell, president of Precision Rings, Inc. says he’s never taken anything from the government before, but decided to this time after careful consideration.
“As we discussed it, we felt that we needed to apply for it, just not knowing what was coming down the road,” he says.
Many Americans would be surprised to learn that even businesses that are earning higher profits during the pandemic, like gun stores, can get PPP and EIDL money.
“I have a friend who owns a gun store, and he had the best month he’s ever had,” says Arp. “And the bank called him and said, ‘Hey, if you want to borrow some money real cheap, now’s the time to do it.’ And so he got as much as he could from it.”
The PPP had $349 billion in funding, with businesses with 500 employees or fewer able to request 2.5 times their monthly payroll. In fact, the total amount of the request automatically populated on applications when an applicant filled in their monthly payroll. And as long as the money would be used for payroll, rent, mortgage and utilities, it doesn’t need to be paid back. It’s just . . . free money.
But many businesses were shut out – many that needed it the most.
William Ellis is the Monroe County GOP chairman and the co-owner of a small antique store in Bloomington. The store, called U’sta B New, is a so-called “non-essential business” so was forced to close in March. He also has a business selling things on Amazon, but it ground to a sudden halt in March as Amazon stopped incoming shipments of products that weren’t food or essential supplies.
He applied for the EIDL on March 22 to get a quick chunk of money to stay afloat, filling out the application on the Small Business Administration’s website.
He’s heard nothing back and has gotten no money. He says he’ll soon be two months behind on rent.
The SBA announced on April 16 that the EIDL had run out of money, and though it’s being re-funded, it seems unlikely the new round of funding will be enough to help everyone (how could it be?) and stop a wave of small-business failures.
“From a political standpoint, at some point, this is going to cost Republicans more than anything else, because their base is getting screwed over,” Ellis said.
Charlene Marsh, an artist in Brown County, applied for the EIDL on March 30, and filled out a second application on April 1 as she wasn’t sure the first one went through.
She got an e-mail confirmation showing that she had applied, but that’s it.
“I haven’t gotten anything since. Absolutely, nothing,” she says.
For both Ellis and Marsh, the funding would have been minimal as the SBA limited the amount a business owner could receive to $1,000 per employee, and both are sole proprietors, so only would have been eligible to receive $1,000 – not the $10,000 specified in the law.
Marsh is a professional landscape painter who has sold her paintings at art shows for 20 years, traveling to shows almost every weekend in the warmer months. But all of those shows have been canceled. She was transitioning to doing wedding paintings and had several weddings lined up. She was going to make about $2,600 on each. But most summer weddings have been canceled.
“Even two weddings a month would have been $5,200, so I’m bummed. Believe me, I’m bummed,” she told the IPR.
The shutdown of the art show circuit and weddings have left her with just online sales of paintings, coffee mugs and other items.
“Right now, I’m just in limbo,” she says, adding that she’s worried about survival going forward. “That’s my biggest fear, is I just don’t want to lose my property.”
Neither Ellis nor Marsh could initially apply for the PPP, as they don’t have employees.
On April 10, the program was opened up to sole proprietors, freelancers, independent contractors and gig workers, but like the EIDL, the program ran out of money on April 16. Few if any sole proprietors, which could be considered the real “mom-and-pop businesses,” got funding.
Long-time Cincinnati congressman Steve Chabot is the ranking Republican on the House Small Business Committee. But his staffers declined all requests this week to talk about the CARES Act.
One obvious question is why there was no requirement written into the law that businesses show or at least attest under some penalty that they’d suffered losses because of the Covid-19 pandemic.
Another is why sole proprietors were not eligible initially to apply for PPP funding. Aren’t these the most vulnerable businesses? The real mom and pops?
A third is why the PPP was set up so that banks would have an enormous incentive to help larger companies over much smaller companies.
All applications for PPP funding had to be through banks and a handful other companies like Intuit.
Banks got a 5 percent fee for loans up to $350,000, 3 percent for loans up to $2 million and 1 percent for loans $2 million to $10 million.
So a bank that processes a $20,000 loan earns a fee of $1,000.
But a bank that processes a $10 million loan earns a fee of $100,000.
Is it any surprise that banks would prioritize customers requesting $10 million loans over those requesting $20,000 loans, as the lawsuit filed this week in federal court in Los Angeles against Bank of America claims they did?
It’s not. Not at all.
Lending Tree, the online mortgage company, surveyed 1,260 small businesses around the country April 16-19 and found that about 60 percent had applied for a PPP loan but that only 5 percent of those that applied had been approved. The survey also showed that 58 percent of entrepreneurs have laid off employees because of the Coronavirus (Covid-19).
On Thursday, the Indiana Chamber of Commerce released a survey of 1,393 of its members showing that 80 percent have lost revenue because of the Covid-19 pandemic and 51 percent are worried about cash flow. Of the businesses surveyed, 43 percent had received PPP loans while 33 percent were awaiting a response to their applications when they found out that the funds had been depleted.
Margaret Menge, a veteran journalist now residing in Bloomington, has reported for the Miami Herald, Columbia Journalism Review, InsideSources, Breitbart, the New York Observer and the American Conservative. She also worked as an editor for the Miami Herald Company and UPI. Menge wrote this for The Indiana Policy Review.