The first round of the Paycheck Protection Program (PPP) was plagued by many problems. Here are some of them.
1. Not-so-small companies got loans. Shake Shack, which has a total of almost 8,000 employees but only 45 at each of its locations, got a $10 million loan. Ruth’s Chris Steak House with around 5,700 employees received a total of $20 million. Even the Los Angeles Lakers basketball team, considered to be one of the top ten most valuable sports teams in the world got $4.6 million.
2. Banks earned more than $10 billion in fees. While many small businesses never got any money from the relief program, banks made more than $10 billion. The loans carry very limited risks which allowed banks to extend larger amounts of loans so that they can get higher fees.
3. The loans have too many strings attached. According to some small business owners, the PPP rules do not allow them to use the money in the ways they see as best. The rules require borrowers to spend 75% of the money on payroll which does not make sense because most of them have stopped operations and there’s no work for their employees.
4. Lack of clear guidance on whether and how the loans will be forgiven. According to Don Stevens of accounting firm CohnReznick, this puts small business owners in a very compromising position. Even if they go out of their way to spend the money on payroll, the loan could still be not forgiven.