The Paycheck Protection Program Has Been A Disaster For Small Business

When my wife and I were dating, she had a friend named Karen who took a liking to my co-worker, Tom. My wife sent me several creative gifts during our courting days, and her friend really admired the gestures. She liked that they showed some interest, but didn’t seem too desperate.

Karen and my wife came up with an idea for Karen to creatively show interest in Tom. Karen ordered a bunch of custom-made fortune cookies with messages like “Karen is a great name for future good fortune” and “Karen loves to go to movies.” She sent the batch to Tom, who was thrilled and, getting the sense that Karen was interested in dating, immediately called her to ask her out. But no matter what day Tom offered, Karen demurred, unsure whether she really wanted to take on the responsibility of having a relationship or not. Eventually, Tom stopped trying. Ever since then, my wife and I have used the term: “you got ‘Karened’” whenever a person or a company woos you but isn’t sure they really want you in the end.

This week, America’s small businesses got “Karened.” After boasting that they would provide all the funds needed to let small business process payroll for eight weeks in the form of a forgiveable loan, the Paycheck Protection Program ran out of funds—after successfully processing loans for only about 5% of America’s small businesses. Now politicians are tossing accusations back and forth about the need for an additional $250 billion in funds, about 70% of the original $349 billion amount. How those funds will fulfill the needs of the remaining 95% of unfunded businesses is a mystery.

Small business owners are understandably furious, as, once again, their place at the table seems to have been pushed aside for larger guests. Perhaps the most egregious example was Ruth’s Chris Steak House receiving $20 million in loans even though the program ostensibly limits loans to $10 million per company (the firm apparently applied with two separate companies for the money). 

After the program launched, businesses discovered that they required an existing business loan relationship with a bank, though many small businesses fund through family and friends, or—crazy unique idea—by spending less than they make. Though the loans were funded and guaranteed by the Federal government, banks decided that the risk/reward ratio of taking on new customers just wasn’t worth it.

Former Labor Secretary Robert Reich has pointed out that the Federal government is allowing banks to borrow for free, so the PPP loans should be frictionless grants, with banks making nothing on them at all. At a virtual event in Seattle this week, he said “Banks are getting money from the Fed essentially free of charge. The banks shouldn’t be charging any interest at all on any of their loans. Why are the banks imposing any fees on anybody for anything?”

As the program depleted its funds, banks began sending out notes making applicants aware that the program was now unfunded and their hopes should be dimmed. The truth is, many of the banks are just as frustrated about the program as their potential small business customers. One banker told me: “The SBA gave us no direction. Everything was chaos. They seemed to have a predetermined sense of who they wanted to serve. We spent days setting everything up and preparing to serve customers, only to learn that we received about 10% of the money we expected.” The worst part is that “we’ve actually lost customers over this, despite all of our efforts. Our customers are blaming us, not the Federal government.”

According to this banker, other countries, like Japan and Canada, bypass the banking system altogether when providing disaster relief. They simply make direct deposits to citizen’s accounts. 

The process has outraged many small businesspeople. Gravity Payments CEO Dan Price has taken to Twitter prolifically to tweet out a play-by-play of the debacle, pointing out that most small businesses have only a few weeks of retained earnings to draw on. He emphasized the hypocrisy of a country that celebrates the spirit of entrepreneurialism, but, when push comes to shove, produces press releases rather than real relief.

Through it all, the Small Business Administration has promoted the effort in emails, tweets and press releases as though it has been a rousing success. 

Entrepreneurs have never been interested in largesse. We get that business is fickle. When times are good, we don’t expect blame for doing well financially. When times are tough, we don’t expect a handout. But if the PPP program is an example of how government programs for business will be handled during this crisis, businesses should be wary indeed. 

Small business doesn’t want to be lied to. No one likes to be “Karened.”