You've probably already read about how some very big businesses, like restaurant chains Ruth's Chris Steak House and Shake Shack got "small business" loans from the Paycheck Protection Program. That was the emergency loan program created in the $2.2 trillion CARES Act coronavirus response bill, rigged for big restaurant and hotel chains to exploit. An AP investigation into the recipients of this first round of funding has discovered that a lot more very big businesses have exploited the program.
It found that at least 75 publicly traded companies, "with thousands of employees, past penalties from government investigations and risks of financial failure even before the coronavirus walloped the economy were among those receiving millions of dollars" from the loan program. Some of these companies had market values "well over $100 million." These 75 companies, AP found, got a combined $300 million in these taxpayer-funded, low-interest and potentially forgivable loans. The average loan was just $206,000, according to the Small Business Administration.
Yet eight companies or their subsidiaries got the maximum $10 million; in fact Ruth's Chris got $20 million by having two subsidiaries claim it. One of the companies that got $10 million, the AP found, is a software company in California that had been investigated by the Securities and Exchange Commission for accounting errors overstating its revenue; it settled late last year with the SEC. Looking at the statistics released by the SBA last week, AP found that 4,400 of the loans exceeded $5 million. No wonder the fund, which again was supposed to rescue small businesses, was depleted so quickly.
Some of the large companies that surfaced in the AP review had foreign owners or had been delisted from the stock exchange, or threatened with delisting because of poor stock performance even before the coronavirus crisis. Some have had losses for years. One of them, Wave Life Sciences USA Inc., a Boston-area biotechnology company in pharmaceutical development, got $7.2 million. Its parent company is based in Singapore and disclosed in its annual report that it had suffered "net losses of $102 million, $147 million and $194 million during the last three fiscal years." It also said in the report, "We currently have no products on the market and expect that it may be many years, if ever, before we have a product candidate ready for commercialization."
This fund, meant to keep small businesses and their employees afloat during the crisis ended up being a bailout for a lot of companies that were failing even before the crisis. But not all of the companies were failing. Ruth's Chris netted $42 million last year. AP points out Lindblad Expeditions Holdings, a New York travel company with 650 employees that received $6.6 million, had $137 million on its balance sheet at the end of March.
To be clear, if all these people are keeping their workers employed and continuing to pay them, that's fantastic and important. However, the case of Ruth's Chris already throws that into question, since most of its hourly employees have been furloughed, and the people who remain on the payroll are mostly managers and a small number of chefs.
All this is infuriating for the struggling private mom-and-pop business owners, like Zachary Davis in Santa Cruz, California. He has a couple of artisanal ice cream shops, as well as a beachside café and a taco bar that he runs with partner Kendra Baker. They've already had to lay off 70 workers, and a separate $10,000 disaster loan they got from the feds "evaporated in seconds," Davis told the AP. They submitted a loan application under the PPP on April 2, but are still waiting. Meanwhile they watch these massive companies, with lawyers and accountants and hundreds of millions in revenue every year, get their loans approved immediately. It's frustrating, Davis said, "and if you're a little guy, chances are you're going to the back of the line."
Democrats are trying to make sure that the next round of funding for the PPP, which will possibly pass this week, has $125 billion guaranteed to go to small lenders and thus to actual small businesses. And right now the best option continues to be throwing money out there in the most equitable way they can do it. But when we're on the other side of this crisis, clawing that money back from the huge businesses that exploited it is going to have to be on the agenda.