Where $521B in U.S. Small-Business Aid Went | Hacker News Reader

Where $521B in U.S. Small-Business Aid Went

bloomberg.com

94 pointspseudolus54 comments

I’ve been working with several contractors lately. They’ve all been bragging about getting Coronavirus small business loans they don’t need, as demand for home renovation contractors is way up while everyone is working from home. One of them asked me if I had any ideas for investing the loan somewhere that would earn him extra money.

Meanwhile, we’re starting to see a steady stream of questionable loans granted to large businesses such as Kanye West’s or Mitch McConnell’s wife.

I’m sure these loans were helpful to some people somewhere (food service industry is a good example) but the overall execution and monitoring have been generally quite poor.

Anecdotally, most of my friends who kept their jobs felt guilt or shame for taking their economic impact payment when they didn't "need" it as much as someone else.

Wasn't the whole point minimal means-testing to get this done quickly? Plenty of small businesses would have had to lay off employees while waiting for someone to decide if the application was good enough.

Construction is an interesting outlier, I know of plenty of people in service industries who at least got something rather than just being completely screwed.

I specifically haven't taken my loan yet because I do not need it. I have heard similar stories and it rubs me the wrong way to think of how many people are taking advantage of the system and displacing others who need it more.

To play devil's advocate, though, it is hard to watch corrupt institutions like American Airlines get billions in bailout money and not feel like you deserve to claw as hard as you can to get your own (dismal) slice of the pie.

The loans aren’t supposed to be need-based charity. They’re an economic measure intended to preserve the status quo during the shut down—to keep the economy’s web of obligations from unraveling. If you saw your revenue fall, you were supposed to get a loan so you didn’t fall behind on your payroll, etc.

American Airlines got the loans and should have gotten the loans. Airlines are low-margin businesses. Last year, AA had $45.8 billion in revenues and $42.7 billion in expenses. Airlines are always living in the edge of a small shift in one of those numbers pushing them into the red. During the first quarter of this year it had $8.5 billion in revenue and $11.8 billion in expenses—almost completely wiping out all of last’s year’s profits. And that was just through March! If AA didn’t get the loans, it would have to lay everyone off, suppliers would stop getting paid, etc., and that would trigger exactly the unwinding of the economy that would make recovery protracted and painful.

Is AA the airline that spent their incredible surpluses on stock buybacks which put them in a financially vulnerable position?

From July 2014 to December 2019 AA spent $12.4 billion in stock buybacks. Over that period, they had $235 billion in revenue and $200+ billion in expenses. Is it unreasonable to return $12 billion to investors over that period, amounting to 5.1% of revenue really so unreasonable? By comparison Google bought back $18 billion of shares last year, amounting to 11.1% of revenue.

Yes, it is completely unreasonable. $12B represents a far more significant sum to AA than it does to Google.

- Unlike AA, Google has enough cash on hand to cover expenses for close to a year

- Unlike AA, the service Google provides is not commoditized and highly profitable

- Google's market cap is 100x that of AA

- Unlike AA, Google's services are not highly susceptible to disruption by things like fossil fuel prices, terrorist attacks, politics and global pandemics

> - Unlike AA, Google's services are not highly susceptible to disruption by things like ...

Advertising is actually one of the first things to be scaled back in an uncertain economy, and due to the way most of Google's advertising business is based on auction based pricing, if 1% of companies pull their ads, Google will lose more than 1% of revenue, since prices also fall, so there is an amplification effect.

Google is still in a much better position than AA though.

Hindsight is 20/20, and not really fair, but leaving any judging tone out of it, yes, AAL would have benefited from more cash on hand. Or, maybe it was the right decision after all if they get bailed out.

There's also more than revenue and profits.... AAL may also have had debt or a lack of spare cash; I couldn't find exact breakdowns but some articles suggest their buybacks caused negative free cash flow

https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli...

Contrast with AAPL and GOOG who had, and have, tons of cash on hand. As of 2019, $102B and $117B respectively, which makes them them #2 and #1.

https://www.latimes.com/business/story/2019-07-31/move-over-...

They are supposed to be need based. You have to certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

For something executed that quickly, I think execution was ok. Of course, there were frauds, but you cannot design and implement fraud-free process for $500B in just few weeks. And hopefully, over next few years, they'll be properly investigated and followed up on.

As someone who could have collected quite a bit of money from this program but didn't need it, this really ticks me off. You're not supposed to apply for the loan/grant unless you are expecting to lay people off.

This was determined to be a grift from the start. The fact that the head of the executive branch fired the person agreed upon to provide oversight 2 days after the bill was signed made that abundantly clear.

Yes it's wrong that small business are taking money they don't need. But that's because it was essentially used as a slush fund as is now coming to light.

The need more openness in government technology. There should be a platform right now where anyone can look up who received money from this fund larger than some amount.

FWIW thanks for being responsible.

I'm just a W2 worker but have seen plenty of rationalization around this including "well my competitors are taking the forgivable loans so unless I do I'm at a disadvantage and thus negatively impacted" or "I can't plan 100% for the future and that worries me, so therefore I'm impacted." And that's just the small fishes; a sibling comment mentions our leaders promised to cooperate with oversight then immediately about-faced. No consequences anymore. I know they're supposed to be used for wages but I've seen someone take it anyway as a non-qualifying business because they expect the requirement to follow up with documentation will go out the window since it'll be too much work (to be fair, this last thing was one isolated case).

I think it's unfortunate how much grifting and opportunism goes on, and as we get closer to the election or need to prop up more businesses with more aid, we'll have further programs and rounds with avenues for abuse.

Regarding the contractors, that sounds like outright fraud. My hope would be that eventually the bill comes due for people who fraudulently claimed funds, and they either pay up with interest or face criminal charges. Unfortunately some high profile folks will get away with it - just like they get away with dodging taxes.

Just to throw another anecdote into the pile, a SaaS company I co-founded about a decade ago has about 50 customers with an average ARR per customer of $20k, billed/paid quarterly, with the average customer on a 2 year contract. So each month they typically are billing ~12 customers, who will write a check within 30 days. Receivables 30 days past due are essentially $0 going back for years. Each quarter typically there are 6 contracts up for renewal.

As of March 1 they had maybe $20k of accounts receivable and had renewed 4 contracts YTD, and signed 4 new ones. Not a single customer paid in March. 90% of customers did not pay in April. By May 1 they were looking at about $160k in accounts receivable, and had not closed or renewed a single deal in the last two months. Business had essentially flatlined.

Of course they didn't turn anyone off, because the marginal cost of keeping a customer live is basically zero, and these weren't businesses that were bankrupt, just everyone managing the heck out of their cashflow.

Fast forward to today and 80% of those customers have paid or at least started paying. They closed their first new contract since February two weeks ago, and have made a couple renewals.

Without PPP the company would probably not exist today. I think they got just under $100k in funds. Management is paid almost entirely through distributions, of which there will be none this year. Overall rough guess is that they'll have gone from a +30% trajectory to -30% YoY for 2020.

This sounds like where I’m trying to get my business to be at (I’m leading the on-premise to cloud strategy). PPP to us has also been a lifesaver since our on-premise sales have been nonexistent since March and our cloud offerings can’t sustain the business at all. If we were where your company is at now, we’d rest a lot easier.

Like you said, our customers who are on our subscription model ended up paying eventually, but things got a little scary in March and April when PPP was still uncertain.

Non-american here, so the goverment loan is supposed to cover all the missing payments, and then when the customers repay the missing payments the business pays the goverment back?

Also, it's super weird how Americans still use checks, especially to pay a SaaS company. Invoicing is so much easier to work with.

“Write a check” is almost certainly just a figure of speech here.

as long as you don't lay anyone off the loan is forgivable.

A lot of people on social media and in the news are complaining about businesses that took the money that didn't "need" it. It's fun to be outraged but I think there's a few things everyone should know:

- First, the forgiveness requirements, while not fully finalized, cap the amount of money a single employee can be paid and have forgiven at ~20k. It's not like people are getting 1M dollar loans they can just pocket individually. There are reporting/documentation requirements in terms of employees on payroll before and after the loan was made, and documentation required to show a history of the salary that you're asking to be forgiven. I'm sure some things will slip through the cracks, but really they did a pretty good job of shoring up loopholes in the short time period they had to devise this thing.

- Second, very high salaries are not 100% forgivable. If you're making 200k, the most you can have forgiven from the PPP loan is the equivalent of a 100k salary during the 8 or 20 week forgiveness period (again, capped at 20k max)

- Third, who's to say what the long term effects of the coronavirus are on the economy? Just because a business doesn't need the money at this moment doesn't mean they won't be wishing they took it six months from now. Should people who got the stimulus checks and didn't need them give them back too? I don't see too many people complaining about that! I still believe we haven't yet seen the true shape of the coming recession, and think there will be much small business pain ahead. Better to have given these businesses a hand now, I think.

- Fourth - you have to use the money more or less on payroll. This was actually a huge sticking point for a lot of restaurants that wanted to use the money on rent. It's not like loan recipients can buy company Ferrari's with the money - it mostly has to be given to employees in the form of payroll.

Overall the PPP was not perfect, but as far as quickly created government programs, I don't think it was that bad. Millions of small businesses got money, the vast majority of whom can actually use it to pay their middle class employees.

If we want to complain about government programs that are enriching the upper class - I think the latest Fed moves are a better place to start.

Say I'm a company and I have 100k in the bank. I take the loan for 100k and the company I own makes 100k and it pays out 100k in salary.

Now I have 200k in the bank where otherwise I would have had 100k. In a sense isn't this going into the owners pocket?

Say you have $100k in the bank and $100k due to staff and landlords in the next two months and then the government shuts you down for those two months. If the government then gives you $100k, you're not getting rich, you're breaking even.

Some companies are definitely up from the program, others are way down, depending on length of shutdown and how hard their industry was hit. But really, the intent of all the government interventions taken together seems to have been to bring everyone back to even. Obviously the speed of the whole thing did open up some areas of abuse though.

I think you're forgetting that this is a loan first, one that you're inherently liable for paying back, until you're qualified for loan forgiveness afterward.

You have to apply for the loan from a lender (typically a major bank, they handled a large percentage of PPP loans), that will approve your loan or not. The process of that - properly - requires providing financial information about your business and its condition.

If you lie about anything during the before screening or after (when seeking forgiveness), you've committed bank fraud.

If you didn't end up needing the loan, you're liable for paying it back. The lender will make a determination on your forgiveness based on the financials you have to present to attempt to qualify.

There's a giant paper trail for all of this related to your taxes (IRS), financial statements, bank accounts and employee salaries.

Again keep in mind this is a loan. You apply for loan forgiveness after the fact and must substantiate that forgiveness; you may or may not be granted that forgiveness.

You will need to be ready to present full financial statements for the year. The fraud will leap right off the page in your scenario (pocketing an amount equal to the total payroll and then seeking forgiveness).

Here are some of the key conditions for the PPP money:

- You have to substantiate your need for the loan. Then if you apply for loan forgiveness you have to demonstrate that you qualify for loan forgiveness, that you meet the requirements. The lender makes a determination on your loan forgiveness.

- It's based on your average monthly payroll cost for 2019. You can receive up to 2.5 times that amount, meant to cover roughly 8-10 weeks.

- It can go to payroll. 60% must go to this. You may not include contractors in this figure. You must maintain 75% of the prior salary levels.

- The remainder can go to a select few things including rent, mortgage interest, utilities.

- It's limited to a 24 week span of time, in which the forgiveness applies.

> If you didn't end up needing the loan, you're liable for paying it back.

I don't believe there is a necessity requirement on the forgiveness, only on the original funding. And the government assumes any company that received less than 2 million in funding meets this requirement.

(from the treasury FAQ) Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request? Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20 received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

The forgiveness is not based on need. It’s based on how you used the money. The current application makes no requests for any financials besides proof of where that money went.

Did some businesses end up not needing the money? Yes, sure. But there were weeks of uncertainty and unknown closure times. The effects on the economy are still unknown really. I don’t think anyone should be punished from taking money just in case, and luckily they were able to make it. States are shutting down again, so who knows.

> it pays out 100k in salary.

Then the maximum loan you would have qualified for would have been $20,833 and you'd be able to get about 80% (plus applicable utility/rent/mortgages up to potentially 100%) forgiven.

So, $16-21k of free money with currently unclear tax implications. Nothing to sneeze at but it's nothing insane either.

If you pay out 100k in salary for the year, I meant pay out 100k in salary(to your employees) over the 8 week period.

That’s not a forgiven loan and you would have to pay it back. Let’s not just make up bullshit for the sake of trying to make a point.

Anecdata: I'm a small business, 5 regular employees in a few states. Got PPP via WF (in the second wave, WF was very laggy). It did help us but we didn't need the money when we got it - we'll need it a few weeks - because impact to us will lag behind things at the front of the supply chain.

I did lose one employee who quit voluntarily to build his own thing (something I'd been pushing him to do anyway) and he's actually growing that new action.

I'm little mad a WF for taking so long to land the cash tho.

I made all of the data available and made some example Google Colab notebooks. Feel free to contribute with a PR

https://github.com/sbooeshaghi/SBA-PPP-Loan-Data

This seems like an excellent fit for BigQuery... The dataset can be shared publicly in BigQuery as well.

BigQuery is a big overkill for a dataset that fits in memory. Colab + Pandas is the way to go unless you want to sit around twiddling thumbs while BigQuery shuffles the data around.

It's definitely overkill, but it does run fast on small datasets. (almost any query would return in a few seconds at this size)

Also, I find it's SQL dialect and UI very nice for simple stuff too.

It would appear the South had a very high rate of small businesses receiving the loans versus other areas. This is fascinating given that the South was the last area to lock down and the first to open up. Can anyone posit a reason for the clearly higher rates? Are there higher rates of self-employment there?

Republican leadership

(honestly not being sarcastic...that seems to be an active and intentional goal of this administration)

While it's a good angle for some investigative journalism, I'm not ready to reach that conclusion unless some evidence emerges that shows that the loan approval process was politically slanted.

What's even more striking in the statistics is that the loan granting rate in the south is significantly lower in many cases than the percentage of small business jobs saved. this seems to especially be the case in the poorest states in the South.

There is a long pattern of behavior, which to me is evidence. Reported in places such as:

https://www.washingtonpost.com/politics/this-is-hardball-tru...

https://www.theatlantic.com/politics/archive/2020/05/trump-e...

https://www.cnbc.com/2020/05/05/coronavirus-trump-says-blue-...

https://www.theatlantic.com/politics/archive/2019/09/trump-e...

I believe there was even a Harvard public policy journal article that made this argument which I can't locate at the moment.

In general, I agree that the administration's policies have targeted blue states for punishment, the biggest example being the tax cut. But in the specific instance of the PPP loans, I'm just going to wait for the investigative reporting.

That said the POTUS quotes in the CNBC article you linked regarding funding for coronavirus relief are pretty interesting in retrospect:

“because all the states that need help — they’re run by Democrats in every case.”

“Florida is doing phenomenal, Texas is doing phenomenal, the Midwest is, you know, fantastic — very little debt,”

Correction to my comment above: The loan rate in the South is significantly higher than the percentage of small business jobs saved, not lower.

It would help to know rate of pay in those areas. If these areas pay less then the loans were more appealing. Keep in mind the map doesn't tell us who / how many applied, only who got. As the article mentions some chose not to apply.

Does the data say that? Or is this just a visual effect (certain colors are more prominent, subdivisions are larger in the south and west)

Just tap/hover over each state for the state level stats.

Ah thank you. Not noticing a major imbalance.

Compare Mississippi's stats to Michigan's.

My gut says one potential reason would be that small businesses in the South tend to have a much shorter pipeline of upcoming work, along with fewer labor protections.

E.g. a tradesperson will generally be out day-of in a metro, vs that very much not being my experience in the NE.

I saw Mixpanel, Getaround, Bird, a16z, Index ventures, foundational Capital all listed. The VCs are claiming they didn’t receive money on twitter...some think it’s one of their portfolio cos but very strange nonetheless

Really don't think too much about it. It's just our implementation of a Keynesian stimulus.

It's almost too simple, but we're dealing with fire here and it's too dangerous to do anything less spectacular.

I read that as Kanyesian.

I really don't believe the high percentage rates and how they are computed.

Having lots of percentages over 100% is just bad data science and analysis.

Look at the state views.

Just another massive wealth transfer

Given that this is a public dataset, has anyone seen a good visualization not behind a paywall?

https://www.bloomberg.com./graphics/2020-ppp-loans-data-disc...

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