WASHINGTON, D.C. – Oregon’s U.S. Senators Jeff Merkley and Ron Wyden, along with 20 of their colleagues, are pushing Treasury Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza to develop strong supervisory mechanisms to identify instances of unjust enrichment and ensure that the just-passed Paycheck Protection Program (PPP) funding actually reaches struggling small businesses who truly need the money.
The senators’ letter comes amid recent reports indicating that the initial distribution of $350 billion in funding to the program was not limited to struggling small businesses and has boosted owners whose businesses have not been subject severe financial strain—crowding out more deserving applicants from assistance.
“As small business owners await distribution of the additional funding provided for the program in the Paycheck Protection Program and Health Care Enhancement Act, it is critical that the funding provided by Congress be used to provide loans to the businesses whose owners and employees’ livelihoods are truly at risk as a result of the pandemic. Unfortunately, reports indicate that the distribution of the initial round of funding was not limited to struggling small businesses who truly needed the money to remain in operation,” the senators wrote.
“For these reasons, we urge you to develop strong supervisory mechanisms to identify instances of unjust enrichment,” the senators continued. “This is not just a matter of rooting out fraud and abuse—the funding for this program, which we support, is necessarily finite. Every loan that provides a windfall for an applicant who does not truly need it results in one fewer loan made to a struggling small business owner whose employees could be truly helped by this funding.”
This letter follows disturbing reports that major companies, including national restaurant and hotel chains valued at billions of dollars, were able to access PPP loans while many small and independent businesses were shut out. While some of these businesses have agreed to return their loan funding under pressure, many others have not.
Today’s letter is the most recent of a series of steps by Senator Merkley to press the Trump administration to put the interests of small business owners, workers, trade organizations, and unions above the wish lists of massive corporations with deep pockets and lobbying budgets. Previously, Merkley shared concerns he heard from small businesses across Oregon regarding the accessibility of emergency assistance with Secretary Mnuchin and SBA Administrator Carranza, and demanded that the SBA immediately fix a number of specific PPP implementation problems; including the prioritization of bigger, more lucrative customers for priority access to the program, and the need to clarify eligibility information for community hospitals and other critical groups.
Merkley and Wyden were joined in sending today’s letter by U.S. Senators Amy Klobuchar (D-MN), Tammy Baldwin (D-WI), Richard Blumenthal (D-CT), Catherine Cortez Masto (D-NV), Dick Durbin (D-IL), Tammy Duckworth (D-IL), Dianne Feinstein (D-CA), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Mazie Hirono (D-HI), Angus King (I-ME), Patrick Leahy Leahy (D-VT), Ed Markey (D-MA), Chris Murphy (D-CT), Jack Reed (D-RI), Bernie Sanders (I-VT), Tina Smith (D-MN), Tom Udall (D-NM), Chris Van Hollen (D-MD), and Elizabeth Warren (D-MA).
The full text of the senators’ letter is available here and follows below.
Secretary Mnuchin and Administrator Carranza:
We write to request information on what your agencies are doing to ensure that funds made available to small business owners through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) are reaching small business owners who need the assistance most in light of the economic turmoil caused by the pandemic—and on what actions your agencies are taking to prevent these funds from unjustly enriching investors and others whose businesses are not in need of the same relief.
Small businesses and their workers are under incredible stress right now, and we must continue to do everything in our power to help them stay in business and keep their workers employed. By providing up to $10 million in loans to eligible small business borrowers—with the loan size tied to monthly payroll and loan forgiveness granted when the proceeds are used primarily to retain or rehire workers—the Paycheck Protection Program was intended to infuse cash directly into the hands of small business owners to help them and their employees weather the current economic crisis.
As small business owners await distribution of the additional funding provided for the program in the Paycheck Protection Program and Health Care Enhancement Act, it is critical that the funding provided by Congress be used to provide loans to the businesses whose owners and employees’ livelihoods are truly at risk as a result of the pandemic. Unfortunately, reports indicate that the distribution of the initial round of funding was not limited to struggling small businesses who truly needed the money to remain in operation.
Instead, some of this funding was reportedly granted to further the enrichment of owners whose businesses have not been subjected to the financial strain facing most small businesses at this time. During the initial weeks that the program was in place, loan recipients included several hedge funds whose headcount falls well under the 500 employee limit set by the Small Business Administration—but whose annual revenues and incomes render them the opposite of “small.” For these applicants and others who did not meet the criteria of financial need, the funding provided by PPP is simply a windfall—yet their participation in this program crowds out truly deserving applicants whose lack of sophistication and relationships with lenders may have delayed their ability to submit PPP applications.
The Paycheck Protection Program was designed to reach small business owners who truly need the funding. For this reason, as part of the loan process, each small business owner seeking funding must “certify in good faith” that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Under the terms of the lender guidance, “[l]enders are permitted to rely on borrower certifications,” including the certification that the borrower actually needs the money to support ongoing operations.
Although this type of self-certification facilitates the rapid distribution of funding in the face of an extraordinary economic challenge, there must be measures in place to reclaim funding provided to owners and investors whose certifications turn out to be inaccurate, if not deliberately fraudulent.
For these reasons, we urge you to develop strong supervisory mechanisms to identify instances of unjust enrichment. This is not just a matter of rooting out fraud and abuse—the funding for this program, which we support, is necessarily finite. Every loan that provides a windfall for an applicant who does not truly need it results in one fewer loan made to a struggling small business owner whose employees could be truly helped by this funding.
The guidance your agencies issued on April 23, 2020 creates a new safe harbor for ineligible businesses to return loan proceeds to avoid further scrutiny and confirms the fact that large public companies with access to capital markets are “unlikely” to meet the eligibility requirements of the program.Similarly, the guidance your agencies issued on April 24, 2020 makes it clear that hedge funds and private equity firms are “ineligible to receive a PPP loan.” Unfortunately, this new guidance also underscores the agencies’ continued reliance on the “good faith” of Applicants—who are simply reminded to “carefully review” the certification—and does not indicate any forthcoming changes in program administration or supervision that might address the underlying problem or serve as a check on applications submitted by small businesses that clearly do not satisfy the eligibility criteria.
Given the seriousness of this matter, we ask that you provide answers to the following questions:
- In addition to considering an Applicant’s status as a large public company, hedge fund, or private equity firm, what measures are your agencies taking to identify indicators of unjust enrichment that suggest an Applicant does not meet the criteria for economic need?
- Will you commit to transparency measures that provide the public with information to assess the propriety of funding distributed under the Paycheck Protection Program?
- If your agencies identify evidence that Applicants have secured funding in connection with economic conditions that render the loan truly unnecessary, resulting in unjust enrichment of the Applicant, will you commit to taking immediate action in response?
We thank you for your attention to this important matter.