Here’s What Is Stopping Congress From Forgiving PPP Loans
Source: Sacramento Business Journal, Sougata Mukherjee (Editor-in-Chief, Triangle Business Journal)
Photo: Lawmakers continue to struggle with a PPP forgiveness bill. (USCHOOLS)
On Aug. 24, Sen. James Lankford of Oklahoma joined North Dakota Sen. Kevin Cramer to introduce a bill that will automatically forgive Paycheck Protection Program (PPP) loans of $150,000 and under for small businesses. That covers about 4.2 million of the 5.2 million loans under the giant $660 billion program.
But on the same day, news broke that prominent religious leader Jim Bakker’s Morningside USA ministry in Missouri received PPP approval for an amount between $650,000 and $1.7 million. But just weeks before, the Missouri attorney general filed a complaint saying The Jim Bakker Show was engaged in deceptive practices, suggesting a health product touted on the show has the ability to prevent Covid-19 infection. Soon after, the Food and Drug Administration, the Federal Trade Commission and the New York attorney general’s office issued warning and cease-and-desist letters to Morningside.
And therein lies the problem of blanket forgiveness of PPP loans.
While most agree that the loan program that ended August 8, was helpful to millions of small businesses, the forgiveness process baked into the program continues to be confusing and cumbersome. The forgiveness portal opened Aug. 10, but many banks were holding off on accepting applications as they waited for additional guidance from the U.S. Small Business Administration.
Based on some conversations with Capitol Hill observers, it looks like the SBA leaders are worried that a blanket forgiveness may release too many bad actors from being held accountable for their actions. Almost daily there are news accounts across the country of people buying luxury boats, cars and even houses with the PPP proceeds while millions of other businesses struggle to keep their doors open.
So the concern of having some blanket rule of forgiveness is legitimate and real.
But there is a hybrid option.
As suggested by Lankford and Cramer, and many other lawmakers in the past month, why not forgive the $150,000 and under loans completely, but also set up a system to review every loan of more than $1.5 million?
Such an action will cover more than 85 percent of the loans and almost 80 percent of the money. Trying to find bad actors from small businesses that employ less than 10 people simply is not a good use of government resources. Say you find 100,000 businesses with an average of $75,000 in loans that should not have received the money. What will the SBA do? Ask them to return it? Put the owners in jail? Structure a loan repayment plan? They can do all that but we’re talking about $7.5 billion out of the already-disbursed $525 billion, a 1.5 percent penetration rate.
Now, let’s assume among the 100,000 businesses that received more than $1 million, a review determines 5,000 PPP loans should not have been eligible for the program. At an average of $1.5 million, that’s the same $7.5 billion in potential recovery. The big difference is auditing 4 million-plus small businesses versus 100,000 businesses.
If the lawmakers in Washington want to pass a bill to bring some regulatory relief for small businesses, the $150,000 forgiveness clause needs to be attached to the $1.5 million automatic audit clause.
Businesses that received millions may not like that, but they have accountants, financial officers and outside counsel to get their paperwork together come audit time. If they spent the money correctly, they won’t have to worry about a thing.
A dual attack that addresses forgiveness and automatic audits would provide cover for the SBA, lenders and most small businesses, including many that will need more relief as the economy staggers forward.
Or we can just get tangled in the politics of it all – and watch more entities go out of business, and additional millions of workers out of a job.