An earlier version of this article incorrectly stated the average implicit size of firms approved for PPP loans. We regret the error.
The Small Business Administration has said banks have approved nearly $ 250 billion in emergency loans to U.S. small businesses, but there is little evidence that much of that money ends up in the hands of homeowners. company, which many say time is running out. before the coronavirus outbreak forces them to shut down permanently.
“In general, the system doesn’t work well,” said John Arensmeyer, chief executive of the advocacy organization Small Business Majority, in an interview with MarketWatch. “Even businesses that have heard that their loans have been approved haven’t seen any money yet.”
The SBA said on Tuesday that more than one million paycheck protection program (PPP) loan applications have been approved by 4,664 lenders for approximately $ 247 billion, through April 13, but provided no information on the amount actually disbursed.
The Paycheck Protection Program was established by the CARES Act and offers forgivable loans to small businesses that have been forced to shut down or downsize their operations due to the coronavirus outbreak, as long as they maintain employment at pre-crisis levels.
JPMorgan & Chase Co. JPM,
announced Tuesday on a call with analysts that “we have funded $ 9.3 billion for companies with more than 700,000 employees”, but others, like Wells Fargo & Co. WFC,
and Bank of America Corp. BAC,
did not indicate how much they paid.
“While loans would have been slow to fund in the first week of the program as lenders waited for greater clarity, we expect more funds to be funded in the coming days as the SBA / Treasury continues. to issue program guidelines that answer outstanding lender questions, ”Kelly Motta wrote. , analyst at KBW, in a note to clients on Wednesday.
Banks are still waiting for greater clarity in terms of liability if new loan applicants do not follow PPP rules and more guidance on how to deal with claims from independent contractors and independent contractors. There have also been numerous complaints about the SBA’s E-Tran application portal as it has been overwhelmed with the loan approval application.
But time is running out for many small businesses. A survey commissioned by the Small Business Majority showed that 41% of small businesses are seeing their revenues drop by 50% or more due to the coronavirus outbreak. Another survey by data firm Wompley showed that 20% of small businesses in America couldn’t survive more than a month without income.
Meanwhile, data from the SBA suggests that a large chunk of the approved funds have been earmarked for larger, smaller companies. The average loan amount approved was $ 239,152, according to data released Tuesday.
Since companies are allowed to claim 2.5 times their monthly wage cost, these loans suggest that the approved company’s median annual payroll is over $ 1.1 million. Assuming these companies pay their workers at the median U.S. salary in 2019, the average approved company has 23 employees.
The payroll costs for many small businesses are much lower than that, Arensmeyer said. Data from the JP Morgan Chase Institute shows that 88% of companies with fewer than 20 employees and almost 40% have sales of less than $ 100,000.
“The people we know who have been successful in applying for and getting loans are the biggest, most sophisticated companies, leaving everyone on the sidelines,” Arensmeyer said.
While Arensmeyer has said he spends most of his time reaching out to small businesses to educate them on the current PPP program, he believes Congress should embark on a rapid and comprehensive reform of the program to transform it. into a grant system administered by the Internal Revenue Service. . “We don’t think there is a way for the SBA to handle the real need for relief,” he said.
Howard Mason, head of financial research at Renaissance Macro Research, estimated that at least 10 million small businesses will eventually need small business loans or repayable grants to stay afloat, with a total cost reaching $ 1.8 trillion. of dollars.