Editorial: Bigger firms taking undue heat for receiving paycheck loans

The federal government’s Paycheck Protection Program has provided a lifeline to hundreds of thousands of small businesses—but it’s also leaving a lengthy trail of hard feelings.

Much of the ill will stems from a perception that bigger businesses are scooping up billions of dollars that had been intended to help small businesses cover payroll during a time of nearly unprecedented economic strain.

The program’s initial $350 billion ran dry on April 16, after being available less than two weeks. After Congress restocked the program with an additional $310 billion, the U.S. Small Business Administration reopened the application process Monday. This time around, the money is expected to disappear even faster.

It’s easy to see why emotions are high. Terms of the loans are unbelievably attractive, with the debt forgivable if the money goes toward payroll, rent or utilities. And scoring or missing out on a PPP loan could make the difference between survival or collapse for many small businesses.

But in our view, the finger-pointing at larger firms that qualified for funding is misguided. Companies like Shake Shack and Potbelly, which received PPP loans but later decided to return the money, were indeed walloped by COVID-19. And they qualified for the funding by following the program’s rules, not through chicanery.

Locally, the same goes for Emmis Communications Corp., which received a $4.8 million PPP loan, even though it’s not what many people would consider a small business.

Publicly traded Emmis told IBJ it’s keeping the money, even as some lawmakers and policymakers in Washington pressure the 150 public companies that received PPP loans in the first round to return them. Evansville-based sporting goods maker Escalade Inc. succumbed to that pressure on Tuesday and said it will return its $5.6 million loan.

We applaud Emmis’ stance. The company, after all, is reeling from the loss of radio station advertising during the crisis—and the money will go toward the very worthy cause of keeping its 449 workers employed.

As the company said in a statement to IBJ, “Like most media companies, Emmis’ revenues have been devastated by the COVID-19 crisis; unlike most media companies, we have been able to keep paying all our employees.”

A better target for attack would be Congress, for crafting a program that let so many larger businesses in the door. The PPP limited eligibility to firms with fewer than 500 employees, for instance, but then included exceptions for hospitality and restaurant businesses.

Another potential bad actor were large banks, which are facing a growing number of lawsuits alleging they prioritized wealthier clients over smaller applicants in order to pocket larger loan fees.

But the reality is that, despite the headline-grabbing exceptions, the vast majority of the 1.6 million PPP loans in the first round went to downright tiny businesses. Axios reported that 87.5% of the loans were for less than $350,000.

And the biggest reason so many small businesses have felt left out is that demand for cash far exceeds supply. Politico reported that the PPP would need close to $1 trillion to satisfy that demand.•

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