Hundreds of companies that received a cash injection under the Paycheck Protection Program have gone bust despite the aid, according to a new analysis.
Nearly 300 companies that received as much as half a billion dollars in pandemic-related government loans later filed for bankruptcy, according to a Wall Street Journal analysis on Tuesday.
It comes amid complaints that the program has been plagued by a lack of transparency, and also failed to demonstrate sufficient ability to prevent fraud and abuse.
The new analysis only includes larger borrowers, and does not include smaller companies that simply liquidated rather than filing for bankruptcy, meaning the true number that went under is likely much larger.
A chart shows the cumulative number of bankruptcies among PPP recipients over time
The companies included in the analysis employed more than 23,000 workers, and many say that the lack of additional stimulus as lockdowns dragged on weighed heavily on their businesses.
Through the PPP, the government awarded a total $525 billion in forgivable loans to 5.2 million companies since April, with the condition that the money be spent on qualifying expenses such as payroll, according to the Small Business Administration.
The SBA released data on the largest borrowers, which the Journal compared to bankruptcy filings to conduct its analysis.
Because the SBA only lists ranges for the amount of loans, the total for companies that filed for bankruptcy is between $228 million and $509 million.
There is nothing fraudulent about filing for bankruptcy after receiving a PPP loan, unless the loan funds were misused, but it does mean the government will have little chance of recouping those loans.
Waterford Receptions, a popular wedding and events venue operator with two locations in Northern Virginia, had been in business for 20 years and received a $500,000 PPP loan in April but was unable to survive the pandemic.
Waterford Receptions in Northern Virginia, had been in business for 20 years and received a $500,000 PPP loan in April but was unable to survive the pandemic
Owner Keith Clark used the funds to pay 45 salaried employees over the summer, but as lockdown restrictions dragged on he was unable to keep the business afloat.
‘It hit, we had to shut down, and cash-wise it couldn’t have been worse timing,’ Clark told the Journal. ‘Not only could we not keep employing people, we couldn’t pay utilities, and it takes a pretty decent amount of money to keep two buildings going.’
The company’s revenue this year fell to $567,000, down 90 percent from $6 million in 2019.
Clark considered filing for Chapter 11 restructuring, but ultimately filed for Chapter 7 liquidation.
‘In order to reorganize and keep going, you have to say when we’re going to be open,’ he told the Journal. ‘We had plenty of bookings but no foreseeable date where we could get going again. It just wasn’t practical.’
Separately, PPP loans have been plagued with fraud and abuse, with loans allegedly going to scammers who spent the funds on exotic cars and other luxuries.
The Department of Justice said that it had charged at least 57 defendants for attempting to steal more than $175 million from the program.
‘What was clear to us with PPP…is that the controls were very weak,’ said William Shear, a director of Financial Markets and Community Investment at GAO, a non-partisan watchdog that works for the U.S. Congress.
A chart shows the states with the largest number of bankruptcies from PPP recipients
The GAO has issued two lengthy reports since June that were critical of the efficacy of the PPP and other U.S. government responses to the pandemic.
The SBA, which oversees the Paycheck Protection Program and has defended its performance while stressing the challenges of overseeing hundreds of billions of dollars in loans in a short space of time, said it is working with the GAO.
‘I reject the sudden claim that SBA is not cooperating with GAO or that we are dragging our feet in responding,’ Jovita Carranza, the Administrator of the SBA, said in a statement.
According to a report published in September by the GAO, plans to safeguard the loan forgiveness process remained incomplete. For instance, the GAO said, banks that issued the loans are the initial deciders of how much of a loan should be forgiven.
But it is unclear to what extent they are responsible for verifying the information provided on applications versus relying on borrowers´ versions of their finances.
Also unclear is the extent to which the SBA intends to review the banks´ decisions, the report said, noting it is a conflict of interest for banks to be heavily involved in loan forgiveness since it is in their interest for loans to be forgiven.