The Paycheck Protection Program Has Been a Colossal Failure
- Author: Chris Remington
- Posted: 2024-03-02
The first round of the PPP left millions of small businesspeople empty-handed and frustrated. Left without much guidance, they were forced to rely entirely on their banking institution. However, not every bank was up to the task, and customers lost valuable time in applying for these loans. By the time their applications were processed, they either found out that they did not qualify for a PPP loan or that there was no money left for them.
Large Businesses Are Helping Themselves
In the meantime, businesses that were questionably considered small businesses swooped in and took the funding that was meant to keep small businesses going. There are numerous stories of large public companies applying for and receiving loans under the PPP. Many banks prioritized their larger customers because it is a valuable financial relationship for the bank. As a result, the people who really needed the federal financial assistance have been left out in the cold waiting for the second round of funding. There are no guarantees that they will be taken care of, even after Congress appropriated hundreds of billions of dollars more for the second round of PPP funding.
Here, one of the major problems was the bear-complete lack of guidance from the SBA before the first tranche of funding was distributed. The money was just put out there with little instruction for banks about program requirements. Then, it was left up to the individual banks how to take applications from their customers. Some were relatively transparent. However, others completely failed their customers. For example, Capital One Bank did not even post an application for its customers until the first round of funding was completely gone. Since banks limited applications to existing customers, businesses were completely at the mercy of their own bank when it comes to applying.
Banks Have Been Inefficient and Unhelpful
This is yet another example of how banks have prioritized their own financial interests over anything else. Here, banks have been viewing PPP in the context of their own financial relationships. Practically no banks have acted to help the general public by acting as a conduit for financing. Instead, they are only taking applications from those who reward them financially. There have been no government rules to keep banks from acting this way. While it has caused controversy, the federal government has not stepped in and made any regulatory changes that would help struggling small businesses receiving poor treatment from the financial system.
In their defense, banks were left to set up an entire application process in days without much help from the federal government. The federal government was essentially making up the guidance as it went along as it started distributing loans less than a week after the bill was signed into law. However, the PPP thus far is an example of a public-private partnership that has failed thus far because there has been a combination of a lack of government direction and private banks acting in their own self-interest.
In addition, small businesses were left to deal with a combination of SBA's old technology and banks' own systems. The program relied on SBA's E-Tran loan technology, which was clearly not built to handle large-scale applications. Then, a large surge of bank customers crashed their own financial institution's systems to file their own applications. The technology failures prevented many small businesses from filing their applications in time to qualify for funding. Many people reported being completely unable to access an online application for days.
Thus far, the PPP has served as a prime example of how not to distribute federal financial assistance to small businesses. As a result, its long-term effectiveness is very much in question. The PPP may just end up being another large government program that fails to achieve its intended purpose.
