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Thursday, October 22, 2020

Big Banks Prioritized Billions In PPP Funds For Wealthy Clients At The Expense Of Struggling Small Businesses, House Report Finds


The Treasury Department and Small Business Administration encouraged big banks to provide loans from the $670 billion Paycheck Protection Program (PPP) to their “wealthy existing clients at the expense of truly struggling small businesses in underserved communities,” a House subcommittee said Friday as it announced the release of a 19-page report concluding a months-long investigation into the disbursement of PPP funds.

Key Facts

Documents obtained by the House Select Subcommittee on the Coronavirus Crisis show that the Treasury privately told lenders to “go to their existing customer base” when issuing PPP loans, the report says, and all but one of the eight banks involved in the investigation followed the guidance.

At least one bank, Citigroup, did so while recognizing that this created “a heightened risk of disparate impact on minority- and women-owned businesses,” an internal Citi presentation obtained by the Select Subcommittee revealed. 

The report also claims that the SBA and Treasury failed to implement the PPP as Congress intended because they provided no guidance (except for one “vague” tweet from an SBA administrator) asking lenders to prioritize underserved markets, including minority- and women-owned businesses, despite the CARES Act’s language, which called for prioritization of underserved markets.

The report concluded that several banks—including JPMorgan, the biggest PPP lender—processed larger PPP loans for wealthy customers at more than double the speed of smaller loans “for the neediest small businesses.”

In September, the Select Subcommittee released preliminary findings that claimed billions of dollars in PPP loans might have been diverted to fraud, waste and abuse, including more than $1 billion in loans that went to companies that had already received another PPP loan and $195 million that went to government contractors previously flagged by the federal government for performance or integrity issues.

The Select Subcommittee began investigating the Trump Administration’s implementation of the PPP on June 15, following reports that the program favored large companies over “the neediest” small businesses.

Key Background

In March, the $2.2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act established the PPP with $349 billion in forgivable loans meant to go to small businesses and nonprofits exacerbated by the coronavirus pandemic to cover payroll, rent and utility payments. That first round of funding was exhausted in just 14 days, so the program received an additional $321 billion from Congress in April. Reports soon surfaced that many small businesses claimed they struggled to get loans while dozens of billionaire-owned companies and private equity firms managed to secure funding, and the toll on minority- and women-owned businesses has since become more clear with data that shows the number of active business owners has fallen the sharpest among Black and immigrant communities. 

Crucial Quote 

“The Administration’s implementation failures had consequences,” the report states. “Forty-one percent of businesses owned by African Americans failed between February and April 2020, higher than any other demographic group and more than double the percentage of white-owned businesses that closed over the same period.” That figure has since softened to 19%, but Black business owners still account for the hardest-hit demographic, and immigrants follow closely behind, with 18% of their businesses failing through June.


The PPP closed to new applications on June 30, leaving nearly $134 billion unused. The Trump Administration has since proposed using at least some of the leftover PPP funds as a stopgap for stimulus funding while negotiations for another round of coronavirus relief continue to play out. White House economic advisor, Larry Kudlow, told Fox Business Network today that Congress should appropriate unused funds from the previous rescue package to help small businesses, but added that “it takes legislative and political will to do it” and that lawmakers and negotiators are “bickering.”

What To Watch For

If the PPP is extended, the report recommends the SBA and Treasury issue the guidance prioritizing underserved markets, invest in community development financial institutions and minority depository institutions, and add a demographic question to the PPP application to provide transparency about further disparities in the program.

Further Reading

Five Big Ideas To Narrow The Racial Wealth Gap (Forbes)

Here’s What Was Inside The Government’s Massive PPP Data Dump (Forbes)

White House Calls For ‘Immediate’ Vote On Stimulus Stopgap Bill Using Unspent PPP Funds (Forbes)

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