The Treasury Department and the Small Business Administration have encouraged the big banks to provide $ 670 billion in Paycheck Protection Program (PPP) loans to their “existing wealthy customers at the expense of really struggling small businesses in the markets.” underserved communities ”, a House subcommittee. noted Friday, as he announced the release of a 19-page report concluding a months-long investigation into the disbursement of PPP funds.
Documents obtained by the House screening subcommittee on the coronavirus crisis show that the Treasury privately told lenders to “go to their existing customers” when issuing PPP loans, according to the report. , and all but one of the eight banks involved in the investigation followed the advice.
At least one bank, Citigroup, did so while acknowledging that it created “an increased risk of disparate impact on minority and women-owned businesses,” revealed an internal Citi presentation obtained by the deputy. select committee.
The report also claims that the SBA and the Treasury did not implement the PPP as Congress intended because they did not provide any guidance (except for a “vague” tweet an SBA administrator) asking lenders to prioritize underserved markets, including minority and women-owned businesses, despite the language of the CARES Act, which called for prioritizing poorly served markets. served.
The report found that several banks, including JPMorgan, the largest PPP lender, were processing larger PPP loans for high net worth clients at more than double the speed of small loans “for the smallest businesses most in need.”
In September, the select subcommittee published preliminary findings who claimed that billions of dollars in PPP loans could have been diverted to fraud, waste and abuse, including over $ 1 billion in loans that went to companies that had already received another PPP loan and $ 195 million that went to government contractors previously reported by the federal government. 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 “most needy” small businesses.
In March, the $ 2.2 trillion CARES (Coronavirus Aid, Relief and Economic Security) law established the PPP with $ 349 billion in forgivable loans intended to go to small businesses and nonprofits exacerbated by the coronavirus pandemic to cover salaries, rent and utility payments. That first round of funding ran out in just 14 days, so the program received an additional $ 321 billion from Congress in April. Reports quickly surfaced that many small businesses claimed they were struggling to get loans while dozens of billionaire-owned and private equity firms managed to secure financing. The record of minority and women-owned businesses has since become clearer with data showing that the number of active business owners has declined the most among black and immigrant communities.
“The Administration’s implementation failures have had consequences,” the report said. “Forty-one percent of African American-owned businesses went bankrupt between February and April 2020, more than any other demographic and more than double the percentage of white-owned businesses that closed in the same. period.” That number has since fallen to 19%, but black business owners are still the hardest-hit demographic, and immigrants follow closely behind, with 18% of their businesses bankrupt through June.
The PPP closed to new requests on June 30, leaving nearly $ 134 billion unused. The Trump administration has since offered to use at least some of the remaining P3 funds as palliative for the financing of the recovery while negotiations for another round of coronavirus relief continue. economic advisor to the White House, Larry kudlow, told Fox Business Network today that Congress should allocate unused funds from the previous bailout to help small businesses, but added that “it takes legislative and political will to do it” and that lawmakers and negotiators “bicker”.
What to watch out for
If the PPP is extended, the report recommends that the SBA and Treasury issue guidelines prioritizing underserved markets, invest in community development finance institutions and minority depositories, and add a demographic question at the request of PPP to ensure transparency on additional disparities in the program.