◼ BUSINESS Bloomberg Businessweek May 4, 2020● New rules on what’s “small” let large outfits grab an outsize chunk of small-business reliefWhen Big Companies
Crashed the Party
WhentheU.S.governmentbeganapprovingalmost
$350billioninemergencyassistanceonApril3 to
smallbusinesseshurtbytheCovid-19pandemic,
manytinyoutfitsthoughtit wasfinallytheirchance
forsomedesperatelyneededrelief.Butwhilesome
momandpopoperationswaitedinvainfortheir
shareofa federalbailout,a 700-personbiotechcom-
panythatrecentlypaida multimillion-dollarsettle-
menttotheJusticeDepartmentwasapprovedfora
loan.Sowasa telecommunicationscompanywith
1,270workers,almosthalfofthemoutsidetheU.S.
ThePaycheckProtectionProgram,promotedas
a Covid-19lifelineforoperationswithfewerthan
500 workers,providedtensofmillionsofdollars
inloanstobusinesseswithfarlargerpayrollsthan
that,accordingtodisclosuresfiledbypublicly
tradedcompaniesthatreceivedtheaid.Companies
withasmanyas1,500workerscouldhaveaccessto
theprogrambecauseofobscurefederalrulesthat
in 2016 redefinedwhatconstitutesa smallbusiness.
“Wearefrustratedthatthisis happeningbecause
wedofeellikeourmembersaregettingboxed
out,”saysKarenHarned,executivedirectorofthe
NationalFederationofIndependentBusinessSmall
BusinessLegalCenter.“Theyfeellikeonceagain,
they’regettingshortchanged.”
UnderSmallBusinessAdministrationrulesthat
setsizelimitsbyindustry,bituminouscoalcompa-
nieswithasmanyas1,500employeesqualifyforPPP
loansofasmuchas$10million,asdosteelmakers
with 1,000 workers. Music publishers, newspaper
publishers, and companies that provide sea cruises
can have as many as twice the 500-employee limit
that made headlines when Congress enacted the
program. In all, companies in more than 300 indus-
tries are considered small by federal rules even
when they have more than 500 workers.
The SBA set the current size standards to gov-
ern how businesses in different industries could tap
into its existing programs and for government con-
tracting purposes. When Congress created the PPP
in March, the adjusted definitions left Main Streetshops to compete with far larger companies, and
the initial $349 billion pandemic relief program
was tapped dry in just 13 days. Congress has since
appropriatedanadditional$320billion.
Theprogram’sdesignmayhavecontributedto
theproblemfortrulysmallbusinesses.Itsforgivable
loanswerecappedat 2 ½ timesacompany’s average
monthly payroll or $10 million, whichever is lower.
Larger companies take larger shares, crowding out
others. Also, Congress included a special provision
allowing restaurant and hotel chains with thousands
of employees to apply for loans as long as each phys-
ical location had no more than 500 workers. That let
some national chains use the program extensively.
Treasury Secretary Steven Mnuchin has sought
to defend the PPP’s reach, citing more than 1 mil-
lion companies with fewer than 10 workers that have
been approved for loans so far. An SBA report says
more than 1.2 million loans were for $150,000 or less.
Even so, those small loans accounted for only 17% ofthe $342.3 billion processed. And while fewerthan
2% of the approved applications sought loans for
more than $2 million, they accounted for 28% of the
total funding, SBA data show.
The Trump administration has announced
new guidance for the program, telling large com-
panies with access to capital markets that theyMost of the Loans, But Not the Money
PaycheckProtectionProgramloansapprovedthroughApril16, 2020
Lessthan$150k $150k-$5m More than $5mNumber of
loans
1.2m$58.3b427k 4k$253.1b $30.9bValue of
loansDATA: U.S. SMALL BUSINESS ADMINISTRATION12