Despite its many flaws, the Paycheck Protection Program pumped billions of dollars into the Colorado economy, saving hundreds of thousands of jobs the pandemic had jeopardized. With the outbreak accelerating again, more help may be needed, some analysts say.
“The money was a godsend,” said Dean Wiltshire, owner of Colorado Teardrops, a Boulder trailer manufacturer. “With the PPP money we were funded, we could pay rent, utilities and meet our payroll.”
The maker of small trailers restarted a manufacturing line and brought back 16 workers, and is now at 20 as demand for recreational vehicles skyrockets. When a key supplier suffered delays, the company’s PPP loan, which totaled $160,000, allowed production to keep moving forward until the needed parts arrived.
Wiltshire is a big fan of the PPP, but he also acknowledges receiving less than requested and having to wait longer than anticipated after his initial applications got held up.
Among the criticisms of the program are that it initially favored bigger businesses over smaller ones, wasn’t as accessible to minority-owned companies, funneled billions in tax dollars to tax-exempt organizations, and proffered loans to industries and agencies — such as oil and gas companies and Planned Parenthood — that offered grist for activists on both sides of the political aisle to complain about.
From early April through June 30, 104,402 borrowers in the state received approval for $10.37 billion in loans, according to the U.S. Small Business Administration, which supervises the program.
That’s more than three times the $3.27 billion in unemployment benefits, both federal and state, distributed in Colorado since March 29, according to the Colorado Department of Labor. As backed up as the state’s unemployment system was, things likely would have been much worse without the PPP.
PPP borrowers in Colorado expected the money would retain nearly 928,000 jobs, a count that excludes those who left the box blank in their applications. That represents about a third of the 2.75 million employed people in Colorado in the middle of May.
“While imperfect, I do believe PPP has contributed to the recovery by easing workforce friction and sustaining operations. PPP allowed companies to retain workers, as well as cover rent and other expenses,” said Brian Lewandowski, an economist with the University of Colorado Boulder Leeds School of Business.
Although the program targeted aid to businesses with under 500 employees, its real intent was to keep workers employed. To encourage that, borrowers who spent 75% of the funds on payroll expenses within eight weeks could have their loans forgiven. Otherwise, they would end up with a two-year loan at a 1% interest rate.
“There was a percentage of the population of small businesses that were helped by gaining access to this money. They were able to keep employees on the payroll who didn’t end up on the unemployment insurance system. It was just a bridge,” said Eric Groves, CEO of Alignable, an online network of 5 million small businesses.
The Children’s Museum of Denver finds itself on the other side of that bridge, but not necessarily on the road to recovery. The nonprofit received under $1 million in PPP funds. Even though it wasn’t able to reopen, it used the money to retain 115 staff members through June 4.
“The most significant benefit was that our team members were able to stay employed and retain their benefits during a very challenging time. It also helped us to transition to online and electronic content for our community while affording us the opportunity to see how things developed with COVID-19 and plan for a future reopening,” said Mike Yankovich, president and CEO of the museum.
The PPP launched Colorado Teardrops into a successful restart, and barring another shutdown, it will keep going, Wiltshire said. But for The Children’s Museum, the money ran out before the virus did, and it had to let go of half of its staff in June. It will start a phased reopening later this month.
A mad rush for money and survival
The Paycheck Protection Program was signed into law on May 27 as part of the CARES Act and opened for applications on April 3. Borrowers and banks alike describe the process, especially in the early weeks, as rushed and confusing. Rules were offered and repeatedly amended.
“It was rough initially. The very nature of putting together something like that on the fly is going to result in a less than perfect rollout,” said Ashley John Burt, president and CEO of The Gunnison Bank and Trust Company.
One of the biggest challenges Gunnison Bank faced was submitting applications to the SBA system, which often crashed. Big banks could dump big batch files, but smaller banks struggled to advance applications as funds were being claimed.
“We couldn’t get onto their system. It would kick us off,” Burt said. “I had people coming in and working through the night to gain access to the system, trying to avoid peak times and peak web traffic.”
The initial round of $349 billion ran out in two weeks, leaving frustrated businesses fearful they had been left behind.
“I don’t think SBA and the lenders were prepared when it first opened up. It caught a lot of lenders off guard. The SBA was in no position to handle the influx of borrowers at the time. We had never been through this before,” said Tony Gagliardi, Colorado State Director for the National Federation of Independent Business.
Gagliardi said an early perception among his members, who have on average five to nine employees, was that lenders were focused on the biggest borrowers and that they were being left behind.
An analysis of loan approval dates in Colorado does support the idea that big borrowers were allowed early seating.
There were 91,017 PPP borrowers in Colorado with loans below $150,000, the cut off for disclosing the name of a borrower. The average date they received loan approval was on April 28.
The average loan approval date for the 13,385 borrowers with loans above $150,000 was April 16. And even though they had access to other capital sources, nearly three dozen public companies in Colorado won approval for PPP funds, according to COVID Stimulus Watch database from Good Jobs First.
Out of all the loans issued in Colorado, only 1.5% were for more than $1 million, but it was the smallest of borrowers who had the most trouble navigating the system and who had to wait the longest to receive funds.
A survey done by Alignable found that minority-owned businesses reported rejection rates twice as high as non-minority borrowers.
“Roughly 12% of the minority businesses that applied for the loans were rejected compared to 6% of the non-minority,” Groves said. Had the rejection rate been comparable, another $20 billion could have gotten into the hands of minority businesses, he estimates.
Groves said some of that had to do with the lenders that minority businesses turned to and their ability to access the SBA system. Some borrowers thought they were approved, but never received funds, the Alignable survey found.
Concerns about missing out eased after Congress allocated another $320 billion to the PPP. In the second round, a greater emphasis was placed on reaching smaller enterprises and minority-owned and women-owned businesses through community lenders.
“It wasn’t as much ‘favoritism’ as it was streamlining of service,” said Jenifer Waller, president of the Colorado Bankers Association.
Banks naturally served existing customers first because they already had those borrowers’ information, which allowed for faster processing, she said. Also, despite the funds originating from the SBA, banks still had to follow federal “Know Your Customer” laws and other regulations. Those delayed the processing of loans from new customers who couldn’t apply with their existing banks and credit unions.
Why did they get money?
The Treasury Department resisted releasing the names of PPP borrowers, citing privacy concerns, even though other SBA loan programs provide names, borrowers were informed ahead of time of disclosure and taxpayer dollars are involved. Eventually, it conceded, releasing a redacted list of borrowers approved for loans of $150,000 or more on July 6.
The speed of the program’s implementation also shows up in the borrowers’ list. For example, Snappy Nails & Spa locations in Broomfield and Westminster each show up as being approved for loans in the $5 million to $10 million range. Given the two salons were retaining 23 jobs between them, the loan amounts made no sense.
“After reviewing the data, it appears that the business was initially approved for a larger loan based on a data entry error by the lender. What happened is that, prior to disbursement, the lender adjusted the amount to correct the error,” said SBA spokesman Chris Chavez.
As soon as the borrower list was released, it was open season on complaining about who received assistance and whether that was an appropriate use of public dollars.
Opponents of abortion were critical that Planned Parenthood received funding for 42 of its 49 affiliates, including Rocky Mountain Planned Parenthood, which received between $2 million to $5 million to retain 400 jobs.
“From Day 1, the Payroll Protection Program made it clear that Planned Parenthood affiliates were not allowed to receive the PPP loan funds. Yet, the organization ignored the rules and stole money from the American people,” said Jim Sedlack, executive director of the American Life League, in a statement.
Newsweek estimates at least $7.3 billion was approved for religious groups, including $1.7 billion the Associated Press estimates went to the Catholic Church. That raised concerns about the separation of church and state and more generally, why tax dollars were going to tax-exempt organizations.
“No organization was immune to the financial hardships created by a global pandemic that shut down many aspects of our society, and so it seems misguided for anyone to be arguing that more people should have lost their jobs simply because they work for a church,” the Archdiocese of Denver offered in a rebuttal.
Environmental groups were not happy that 178 Colorado fossil fuel companies received a PPP loan, especially the 17 that reported zero jobs retained. Normally, companies with fewer than 500 workers can apply for SBA loans, but the limits are set at 1,250 for oil and gas firms and 1,500 for coal companies.
“Everyone can agree that COVID relief should go to those who truly need it — working Americans and small businesses,” said Lauren French, communications director for Climate Power 2020. “It shouldn’t be for oil and gas giants and large corporations who are abusing the program or abusing the system to get large payouts on taxpayers’ dimes.”
Multiple investment management and private equity firms show up on the list of borrowers, as do nearly a dozen private clubs across the state, from the Cherry Creek Country Club in Denver to the Maroon Creek Club in Aspen.
Country clubs and golf clubs, even though they cater to a wealthier clientele, were shut down, and investment firms were rocked by a big drop in equity values in February and March which reduced their revenues.
And the model the U.S. Treasury and the SBA fell back on was one of providing disaster relief. The goal was to get dollars out as quickly as possible to as many businesses as possible, rather than targeting aid. That meant some borrowers who didn’t really need the money or didn’t qualify likely snuck through.
“It wasn’t meant to be the thing that rebuilds the community,” Groves said.
A squandered opportunity?
Heading into the crisis, many small businesses were operating on a thin cushion of reserves, leaving them exposed when the state and local governments ordered closures. Even though many things have reopened, sales remain down for many.
“For a variety of reasons, when the crisis hit, a majority of them only had a month of reserves — 37% had bank balances of less than one month,” Groves said.
Gagliardi said borrowers initially had eight weeks to spend the money, whether the customers were there or not, and whether workers were ready to return.
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“You have to rely on the consumer having confidence and feeling secure. We are just now reaching that point,” he said.
The rules were later eased to give businesses more flexibility on how and when funds were spent. There is even a proposal to forgive all loans under $150,000. But the changes came too late for many borrowers, who rushed to rehire workers and pay them.
That set up a conflict with another provision in the CARES Act that provided unemployed workers an additional $600 a week in federal assistance, the equivalent of $15 an hour. Many workers could make more staying home, and they pushed back, Gagliardi said.
When the program reached its initial deadline at the end of June, there was still $130 billion left. The deadline was extended to Aug. 4. Most who needed or wanted to borrow have done so and the rules don’t allow a second loan, although Congress is considering changing that.
The PPP, for all its faults, provided the U.S. economy a few month’s time to get the outbreak contained, and it has helped drive a strong rebound in hiring. The vast majority of those who received helped needed help, Groves said.
But the money has largely been spent, and extended federal unemployment benefits are set to expire this month. As infection rates skyrocket in California, Florida, Texas and Arizona, the worry is that many parts of the country will have to reverse course on reopening. Whatever breathing room the PPP bought, at a price tag of $521.5 billion, may end up being squandered.
“We have a public health crisis we have to solve for. Once we solve for that, our economic issues will be easier to understand. We will have some clarity about what the future holds. We are operating with an extremely uncertain future,” Burt said.
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