The Paycheck Protection Program (PPP) was established under the CARES Act to help small businesses weather the coronavirus crisis. These loans, which are administered by the Small Business Administration, can help small business owners cover expenses such as payroll costs so they can afford to continue paying workers. A PPP loan is forgiven as long as the business does not lay off workers or rehires them by June 30.
The Paycheck Protection Program has been heavily criticized ever since news broke that Shake Shack, a publicly traded burger chain, received a $10 million loan from the program. Under the terms of the program, the definition of a small business is having less than 500 employees. With over 8,000 employees, Shake Shack clearly does not qualify as a small business. But a carve-out in the CARES Act allowed certain businesses, including restaurant chains, with “not more than 500 employees per physical location” to be eligible for these loans.
Earlier this week, Danny Meyer, the CEO of Union Square Hospitality Group (USHG), and Randy Garutti, the CEO of Shake Shack announced that the company plans to return the $10 million to the federal government:
Shake Shack, like all restaurant businesses in America, is doing the best we can to navigate these challenging times. We don’t know what the future holds.
Our people would benefit from a $10 million PPP loan but we’re fortunate to now have access to capital that others do not. Until every restaurant that needs it has had the same opportunity to receive assistance, we’re returning ours.
Shake Shack isn’t the only large company that successfully applied for a loan through the PPP. Other large companies, including hotels and chain restaurants, were able to obtain funds ahead of numerous small business owners who were unable to apply for help before the program ran out of money.
Yet despite this setback, the Paycheck Protection Program still has merit. As my colleague Patrice Onwuka explains:
The Administration has acknowledged the issue and intends to issue certification guidance about which companies should qualify for PPP loans.
President Trump went further saying they would ask big companies to return the funds.
While the media is hyping this issue, and it’s an important issue to point out, the program still has merit and it is still helping small businesses.
According to Axios analysis of Small Business Administration data, almost nine out of 10 PPP loans were for less than $350,000 (87.5 percent of the loans totaling $109 billion of the $349 billion). Just 4 percent of loans were for $1 million and over but they ate up $152 billion of program funding.
This is a flaw in the execution of the program, but it is still a better way to help workers than other forms of stimulus such as unemployment.
For the workers who face losing a paycheck and joining 22 million Americans in the unemployment line, it is a better strategy to help them stay attached to their jobs rather than waiting for them to be let go and pushing them onto government dependency programs.
Congress should bear this in mind as it debates whether to replenish the fund for small businesses across the country. Many businesses, through no fault of their own, are on the brink of collapse and the Paycheck Protection Program might be their only hope. Going forward, larger companies should be ineligible for these loans so that aid is targeted to those who need it most.