Hi, I'm Rick Kahler, thanks for joining me.
On March 27th, the US Congress approved a
2.2 trillion dollar stimulus bill which
was intended to inject money into the
economy to help the millions of workers
and small businesses who have been
devastated by the COVID-19 closures.
The CARES Act provided for $350 billion
for small employers which would be a business that
employs under 500 workers.
Applicants were required to certify that
they believed "current economic uncertainty
makes the loan request necessary to support
ongoing operations."
Companies that maintained their payroll
during the coronavirus outbreak would receive
up to eight weeks of cash flow assistance.
Employers were told that the portion of the loans
used for covered payroll cost,
interest on mortgage obligations, rent, and utilities
would be forgiven.
So it means never paid back, basically a grant.
Accountants, bankers, and government officials all urged
small businesses not to dally.
The funds were available on a first-come
first-served basis.
Panic-stricken businesses complied with that,
flooding lenders and the Small Business Administration
with requests for funds.
Well, complete chaos ensued.
Both the SBA and most banks were unprepared
and overwhelmed by the demand.
The guidelines and application process
changed almost daily and the program
ran out of money in just 13 days on April 15th.
On April 10th, five days before that,
USA Today published an editorial by
Juleanna Glover and in it
she said something pretty provocative.
The title of the story was "Don't Take Free
Paycheck Protection Money If Coronavirus
Doesn't Threaten Your Business."
Glover quoted NBC News senior
business correspondent, Stephanie Ruhle's threat
to, and I quote, "search... until my
last breath on Earth to match the publicly disclosed
EINs of loan recipients with the owners of hedge funds,
private equity funds, and the wealthy." Wow!
That was the beginning of the PPP public shaming.
Business owners who had applied for the funds
in good faith began second-guessing their decisions.
On April 20th, five days after the loan window
closed, Senator Marco Rubio promised
retribution to firms deemed
to have abused the program.
On April 28th, Treasury Secretary Steven Mnuchin
told CNBC that the government will perform a full audit
on any company taking out more than 2 million dollars
from the small business loan program.
The SEC followed suit, threatening investment advisors
who didn't disclose taking the loans
with violations.
Now the problem with these threats
was that the guideline to qualify for loans
was completely arbitrary.
The only requirement, other than having fewer than
500 employees, was the applicants belief
that the uncertainty of the current
economic conditions would prove
to threaten the ongoing operations of their business
and that a loan was necessary to keep them from
having to layoff employees.
No time frame was specified.
My guess is that nearly all small business owners
in the U.S. strongly held such a belief.
Paul Thorstenson, CPA, of the accounting
firm Ketel Throstenson, [LLP], told me,
"All we are left with is another poorly written
regulation which is trying to patch a
very poorly drafted law."
What about a construction company
with all of its workers currently employed but with a
real concern that all of its projects will be shut down
by authorities.
What about a small employer with the personal
liquidity to weather the storm but who
will be forced to lay off workers
if the economic situation worsens.
The fear of regulatory retribution
and public shaming is so great that, of eight small
business owners I know personally
who were approved for PPP loans,
six refused the funds.
As Paul Thorstenson put it, "America's
small businesses are left under the veil
of the threat of fraud trying to
estimate how this COVID disaster will play out.
Yet the Treasury will have the
benefit of hindsight to determine
whether the money was or was not necessary.
On May 13th, the SBA acted to mitigate this
particular unintended consequence
of Congress's good intentions.
It added a regulation called FAQ No. 46,
declaring a safe harbor assumption of good faith
protecting all PPP borrowers with loans
under two million.
So while it worked out for those
small business owners that decided with
a lot of angst and anguish
to take the PPP money, those that were frightened to
death by the prospect of a witch-hunt
and retribution were left out in the cold.
thanks for listening.