This is a response to a Fox Business article entitled “Coronavirus recovery — PPP lets small business suffer while big, profitable companies get mega bucks” by Stephen Moore, published on April 17, 2020. In it, Mr. Moore calls for adjusting all PPP loans such that they are no longer forgivable. I find this solution does not properly stand up for or support small businesses, and so I have written this response. I am not affiliated with Fox Business and any use of their trademark(s) are accordance with fair use doctrine only. The original article can be found here. Furthermore, this response does not constitute legal advice.
I find your initial analysis regarding the results of PPP to be at least partially correct, but your solution is baffling at best. It’s hard to disagree that the CAREs Act and PPP in particular are flawed, and that a lot of unintended consequences came to fruition. However, an ex post facto change is not what America needs. In this response I will address what I view are the major challenges to your analysis and propose my own solution.
1) Did businesses who didn’t need help really take advantage of PPP?
I’ve heard or seen this premise on news sources from all sides of the aisle, and I still find it hard to believe. To begin, your article even cites the Washington Post’s report that “the feds won’t report which big companies are getting taxpayer handouts.” If we don’t know who got these handouts, how do we know they’re financially healthy? Furthermore, I find it hard to believe that enough businesses exist that A) can afford to pay their employees despite little or no revenue, and B) would apply for PPP despite not needing it. But if it’s true that enough financially healthy businesses applied to disrupt the original intent of PPP and leave millions of businesses fighting over table scraps or facing imminent insolvency, maybe the problem wasn’t that the loans were forgivable, but that it was too easy to apply. I agree with you that financially healthy businesses don’t need forgivable loans, but you project that position on to all small businesses. From my position as a small business lawyer, it is much rarer to see a company who can weather 8+ weeks of expenses without any revenue.
2) Would businesses sign up for an unforgivable PPP loan?
Your solution relies on the premise that in the current economic climate, small businesses would take out an unforgivable loan (even on favorable terms) to temporarily keep their employees. Remember, to be forgivable, at least 75% of a PPP loan is to be spent on payroll. The end goal is to maintain a semblance of normalcy by allowing businesses to keep and pay their employees. But even with a forgivable PPP, many employees are taking unemployment anyway since its now easier to qualify and often pays more than staying employed. Remove the forgivable aspect and you’re asking businesses to take out loans they have to pay back in order to support employees who make more on unemployment. You’re right that this would have prevented financially healthy companies from applying, but I suspect MOST businesses wouldn’t have applied.
Mr. Moore, your solution creates a welfare state, where people are paid more to not work than they are to work. There’s no incentive for businesses to apply and no reason for employees to take the money. You say main street America may never be the same again, but if your solution were implemented, I can guarantee you it would never be the same.
3) Should we retroactively change the terms of $339 billion in PPP loans?
Forgive me if I am incorrect, but it seems that you are suggesting that we retroactively change the terms of $339 billion worth of loans. Setting aside the dubious moral and legal grounds for taking such action, the consequences would be horrific for small businesses across the country. Not only would abandon hundreds of thousands of businesses all across the country who didn’t get this money, but your policy would also hurt the businesses who took the loan in good faith. Your plan dooms main street. The only ones who take this loan are financially healthy employers who pay their employees more than unemployment, or the very businesses your policy tries to stop from taking them.
You also fail to explain the moral and legal grounds for taking such action, other than implying that it is right because it is what should have been done in the first place. You also do not address whether either or both parties would get behind your policy. I doubt the left gets behind your position, and I think the right will be hesitant at best.
4) Is this free lunch?
All across the country, state governments forced so-called “non-essential” businesses to close. Even “essential” businesses have been adversely affected. Governments effectively shut down the economy, destroying otherwise solvent businesses and stable jobs along the way. These businesses did nothing wrong, but your policy signals to the surviving and future small businesses that in order to be solvent, they must be able to pay all expenses with little to no revenue for two months or longer. That’s not how main street operates, and that’s the whole point of PPP.
For years small businesses have been using their cash reserves to support local causes, such as charities, food drives, and youth sport teams. If you ask businesses to keep their cash reserves, those causes will suffer.
From this perspective, I think you will find that most taxpayers are willing to pay to keep main street alive. After all, small businesses have been doing the same thing for taxpayers for years.
5) Why not add more funds to PPP?
There is a much easier solution; one that doesn’t abandon main street in order to stick it to those who took advantage of PPP. Those who were going to take advantage of PPP already applied (and according to your argument, got funding ahead of bona fide applicants). They cannot apply again. If they didn’t apply the first time around or it’s not a big issue, then it’s unlikely they will apply in additional rounds. That means the remainder of PPP applicants are (or will be) bona fide applicants who desperately need funding to pay their employees. Adding funds to PPP will cause that money to go to those bona fide applicants, not to bad actors.
We will see that some employees will rather take unemployment over PPP-induced employment. Additional policy should be put in place to prevent needless inflation of jobless claims and protect the investments that small business owners made on and for their staff. This policy should not prevent filing for unemployment; rather, it should remove the additional funding for those who work for and have offers to return to work for a PPP-funded business.
6) Act before it’s too late
The debate on how and when to reopen the economy is moot without providing additional aid to small businesses. We must do everything we can, as soon as possible, to support main street before it’s too late. Pass additional funding for PPP loans now.
Kyle Gough is a lawyer licensed to practice in Indiana. Kyle guides entrepreneurs, startups, emerging businesses, and small businesses through all stages of growth.