U.S. small business rescue program ignored Congress -watchdog
The U.S. Capitol dome is pictured ahead of a vote on theditional funding for the coronavirus stimulus economic relief plan, amid the coronavirus disease (COVID-19) outbreak in Washington, U.S., April 21, 2020. REUTERS/Tom Brenner/
May 8, 2020
WASHINGTON (Reuters) – The U.S. government’s $660 billion program to rescue small businesses hit by the coronavirus pandemic saddles borrowers with rules that undermine the intention of Congress and failed to prioritize the right businesses, a government watchdog said on Friday.
“Because the (Small Businessministration) did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned businesses, may not have received the loans as intended,” the inspector general said in a 40-page report https://www.oversight.gov/sites/default/files/oig-reports/SBA_OIG_Report_20-14_508.pdf, referring to rural, women-owned and minority businesses that were meant to get access to the Paycheck Protection Program, part of the $2.3 trillion CARES Act.
Adding to the problem, the report said, the SBA did not collect any demographic data when issuing the loans, so it is unlikely it will ever know how many loans went to underserved borrowers.
Indition, the watchdog said, tens of thousands of borrowers who received loans in the first $349 billion round of PPP lending may not be able to convert the money to grants as Congress intended because of rules that require them to use 75% of funds to cover payroll, a requirement not in the law itself.
Under the U.S. Treasury and SBA’s stringent loan forgiveness terms, businesses that use less than 75% of the loan on payroll may not get their loans forgiven.
The report found that that 75% requirement, combined with the two-year loan term – neither mandated by Congress – could “result in an unintended burden to borrowers” given many small businesses have higher operational expenses, such as rent, than head count costs.
The report recommended that the Treasury and SBA review the potentialverse impact of those terms and update them “if necessary.”
Reuters reported last week that many banks have for weeks been asking the Treasury and SBA for more detail on how to calculate the proportion of the loan that may be forgiven, fearing that businesses may end up saddled with debt they had not counted on.
On Friday, the SBA said it had issued $187 billion in loans in round two of the program.
(Reporting by Ann Saphir in Berkeley, Calif., and Heather Timmons and Michelle Price in Washington; Editing by Chris Reese and Matthew Lewis)