Who was the intended PPP target?

Tom Bengtson

Who were the intended PPP grant recipients? At first, it was any company with fewer than 500 employees but then companies with access to other sources of investment, particularly the capital markets, were deemed ineligible. As news about the program spread, some suggested that profitable companies shouldn’t be eligible for the money. Some said that if the pandemic didn’t severely threaten the viability of the applicant, the company should not be eligible. U.S. Senator Ron Johnson of Wisconsin wrote in a Wall Street Journal op-ed that the rules for forgiving the loans should be changed so that more recipients are required to pay the money back.

Fraud is always a concern with a government program. And, whenever you attempt to put out a huge fire, some water is going to spill onto the pavement instead of onto the burning building. There were problems with the PPP, particularly handling the volume of applications it received. But given the way Congress structured the program, I don’t see fraud being a major problem here.

While the money was allocated through the SBA, and while people refer to the funding as a loan, it is clearly a grant program. There were no questions on the application that might provide insight into an applicant’s creditworthiness. Bankers were not asked to make any judgment about an applicant’s ability to repay. Congress, without doubt, intends to give this money away. And, when it is all said and done, it may prove to be a brilliant move. The money distributed through the PPP may be less than the federal government would have had to shell out attempting to resurrect an economy riddled with even more layoffs and business closings.

Applicants were required to agree that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The application didn’t ask the business owner if the company was struggling financially. It didn’t ask if the company was on the brink of failure. The PPP was created to mitigate uncertainty, which is certainly an accurate way to describe the future that so many business owners face today. Things can be going along fine, with customers paying their bills in a timely manner, and then, boom, payments dry up as suddenly as a car driving off the road. There is no warning. If the government is going to offer a business owner a tool to reduce that risk, of course business owners are going to take it. Business managers have an obligation to use the tools available to them to maintain the employment prospects at their companies. 

An argument can be made that a company on the brink of failure shouldn’t be eligible for PPP money because if a company doesn’t have a plan for turning things around, a grant covering payroll for two months is only going to delay the inevitable. Rescuing a failing business is quite a different task from attempting to preserve a business through a short rough patch.