By Peter White

NASHVILLE, TN – Some well-heeled titans of American business have lined up at the public trough to feed on millions in loans from a special program fund that Congress created to help small businesses weather the coronavirus pandemic. 

The Small Business Administration (SBA) administers the Paycheck Protection Program (PPP). It is supposed to provide loans to help small and medium-size businesses keep their workers on the payroll for the next couple of months. If they do, the loans will be forgiven. 

“I haven’t spoken to anyone who got approved in the first wave that was a sole proprietorship, partnership, or an LLC, “ said At-Large Councilman Steve Glover. Glover is the sole proprietor of an investment company. He didn’t get approved in the first round but plenty of big corporations sailed right through the SBA’s screening process and got loans many of them didn’t need. 

They range from the CEOs of restaurant chains like Luby’s that owns Fuddruckers and the ARC Group that owns Nathan’s Famous hotdogs, to medical technology companies like Endra Life Sciences and COOL Holdings, an investment company based in San Diego. 

And some, like Monty Bennett, are in the hotel business like President Trump. Bennett is a big Trump donor and heads two companies that got $96 million in loans in the first PPP round. Bennett hopes to get another $30 million in the current round. 

According to independent blogger, Judd Legum, 56 publicly traded companies that pay their CEO’s at least $1 million a year, applied for and received loans from the PPP. Legum’s main point is that they don’t need their paychecks protected. They have more money than God.  

Treasury Secretary Steve Mnuchin agrees. He publicly scolded the greedy bunch and told them to give the money back by May 7 or face federal investigations. A number of companies did return the money including the LA Lakers, J. Alexander’s, and the Shake Shack. 

“More than $2 billion of the first round of PPP funding was either declined or returned and will be made available during the current application period,” tweeted SBA’s Jovita Carranza.  But that is less than 1% of the $349 billion that big companies gobbled up in less than two weeks. Most are keeping the money the SBA gave away, including Trump supporter Bennett of Ashford Inc. 

The SBA turned the spigot on again for the second PPP round of $310 billion this week. According to Legum, most of it is expected to go to applications already in the queue. “Many small enterprises will still be left out,” he said. 

“Yesterday morning the portal opened again,” Glover told the Tribune. “It crashed all day long so banks have been trying to get you in. I’m certain some did (get in) but I know that several did not. They had a nightmare yesterday. Mine did not go through,” Glover said.

The SBA uses an electronic loan processing system known as E-Tran. It was that system that crashed Monday morning five minutes after it was opened. The portal went back on line after going dark for several hours. The agency uses it to provide one set of forms, services, and data management to thousands of SBA lending partners. It is not designed to provide multiple sets of forms and guidelines for different kinds of businesses.  

Glover said so many small businesses didn’t get loans in the first round because the SBA changed the PPP rules and issued new guidelines just days before the money ran out.

“The ones who were S-Corps and C-Corps they went right through quickly. But if you were a sole proprietor or if you were a partnership or Limited Liability Corporation (LLC), those didn’t go through. You had to start all over again,” Glover said. 

“What they essentially did, they bottlenecked it at the front end to actually squeeze out the small businesses from being able to get it, which is disgusting, quite frankly, but that’s what happened,” Glover said.

He doesn’t blame his banker. They helped him redo his application according to the new guidelines so it was ready when the SBA’s E-Tran portal re-opened this week. But since it immediately crashed, Glover isn’t sure his application will get a SBA case number.

“Our bankers worked around the clock to help as many customers as we could,” said Debra Moore, Vice President and Manager of the Green Hills branch of First Horizon Bank. Moore said First Horizon secured 988 loans to woman-owned and other small businesses in the first PPP round. 

She said the first round was difficult because of the sheer number of applicants. The bank had to be flexible with SBA guidelines that changed “almost daily”. Moore said it was challenging but worth the sacrifice to help her clients.

“I am proud to say that these clients are minority and women owned businesses. I will continue to push as the demand has been tremendous,” she said. First Horizon, formerly First Tennessee Bank, is based in Memphis. 

It was sheer volume that crashed the SBA portal. Perversely, the PPP has incentivized larger banks to steer large loans to large companies that don’t need the money. Having a one-size-fits all processing fee would remove that incentive and likely reduce the number of big companies taking advantage of the program. 

“I don’t think your smaller community banks did anything incorrectly,” says Glover. “I think they were trying to follow the rules,” he said. 

According to Legum, banks have a good reason to approve large loans for large companies that are clearly not supposed to be getting them: they make a bundle in fees. For every loan of $350,000 or less banks charge a 5% fee. They get 3% for loans between $350,000 and $2 million, and a 1% fee for loans of $2,000,000 or more.  

“This is supposed to be a small business program, but this structure incentivizes banks to serve large companies,” writes Legum. A bank that processes a $50,000 loan makes $2500. It can make $50,000 by processing a $5,000,000 loan.

“Larger companies that pay their workers more qualify for larger loans because the amount is based on a multiple of the company’s monthly payroll,” Legum said. 

Glover does not think the PPP’s failure to support small businesses was deliberate.

“I think these bigger corporations looked at the guidelines under this law and they have lawyers and they took advantage of what was put out there. I’m not mad at any of them for doing that. I just really wish that Congress would have thought a little longer and harder about the definition of a small business in America and about the execution of this bill so it truly went to small businesses.”