When the Small Business Administration (SBA) disclosed long-awaited data last week on recipients of Paycheck Protection Program (PPP) loans, it felt like a postmortem. (New loan applications through the program are set to be accepted for nearly another four weeks.)
News outlets blasted PPP for the number of large corporations that applied for — and received — loan money. They pointed out politicians who benefited from the loans. Analysts calculated how much money the biggest U.S. banks stood to make in processing fees. (The four largest banks have vowed to donate at least the net profits from processing PPP applications.)
But PPP might best serve finance as a jumping-off point of lessons learned so future government-backed lending vehicles — i.e., the Main Street Lending Program — don't suffer the same growing pains.
The drive for PPP transparency has been a growing pain in itself. The SBA agreed to reveal borrowers who received loans of $150,000 or more after weeks of growing demand — and a lawsuit. But the data showed a program rife with inconsistencies.
A central tenet of the program is job retention. However, the number listed in the paperwork's "jobs retained" field is zero for 554,146 of about 4.9 million applications, according to a Bloomberg analysis. The field is blank for another 324,122. Seven loans list negative job numbers.
The amount of money approved on some loans also prompts questions. The maximum loan is supposed to correspond with 2.5 times the borrower’s average monthly payroll. That means a one-person company can only be eligible for $20,833, according to the Bloomberg figures. And yet, more than 75,000 loans for companies that retained one job listed higher figures. More than 150 were for $1 million or more, Bloomberg reported.
Still other recipients said they received much less than the amount listed. For example, the data indicates Frank Demandt's Miami-based architecture firm received $1 million to $2 million. However, Demandt told Bloomberg he got about $19,700.
Mount Juliet, Tennessee-based Ottoh Group allegedly was approved for a $2 million to $5 million loan, according to the SBA data. But Bridget Ottoh told Bloomberg she withdrew her application.
There are other examples of fuzzy math. Nearly 1,000 loans for $150,000 or less list 500 jobs retained. In 209 of those cases, an employee’s average monthly salary would come out to about $4, according to the Bloomberg analysis.
In all, about 20% of PPP loan applications contain flawed job numbers, the wire service estimated, leaving in doubt the government’s claims that PPP supported 51.1 million jobs — and spurring some advocates to say the SBA’s efforts at transparency were insufficient.
"We should know where the money went, how many jobs were saved, and right now with the data, we don’t have that ability to say with any certainty," Kyle Herrig, president of Accountable.US, told Bloomberg.
The ultimate victim in the "jobs retained" inaccuracies may be the borrower, who has to prove they maintained their headcounts and salaries for the loans to be forgiven.
Meanwhile, on Main Street
The architects of the Main Street Lending Program released data last week, too — specifically, a list of about 90 lenders that are planning to originate Main Street loans for new customers. However, the list didn't include lenders that either didn’t want to be publicly identified or — like Citi, Wells Fargo and U.S. Bank — plan to offer Main Street loans only to existing customers.
Eric Rosengren, president of the Federal Reserve Bank of Boston, which is administering the program, said 260 lenders have completed the registration process, and 174 more are still signing up.
Rosengren told The Wall Street Journal the central bank published the list to encourage more lenders to register. But it's unclear why, if interest among lenders is tepid, the Boston Fed would publish the 90-lender list rather than the 260-name or 430-name list.
Is the hope that lenders will see a dearth of competition and decide to participate? (The state-by-state listing shows Bank of America as the only participating lender in Hawaii, for example, and KeyBank and BofA as the only two in Alaska.)
Publishing a more comprehensive list, by contrast, might prompt some reluctant lenders to think, to borrow a phrase from the 1990s band The Cranberries: "Everybody else is doing it, so why can’t we?"
The perceived lack of interest in the Main Street program "is a concern, both politically and also in terms of getting liquidity to the firms that need it," former Fed Chairman Ben Bernanke said last month, according to The Wall Street Journal.
The program's slow rollout was allegedly due to disagreements between the Federal Reserve and the Treasury Department, the publication reported, citing current and former government officials who wished to remain anonymous.
Negotiations between the two bodies over the terms of the program caused a weeks-long delay, the sources said. Fed officials reportedly favored easier terms that would increase the risk of the government losing money, the Journal reported. Treasury officials skewed more conservatively.
Additionally, Fed officials used a model that showed the impact of losses during severe downturn, while Treasury officials looked more closely at near-term profits or losses.
In a sense, the much slower buildup of the Main Street program — and even the methodical negotiations — may help it avoid some of the pitfalls PPP suffered in its rush to the public. It remains to be seen whether the Boston Fed’s lender list will spur a swell in signups. But the timeline on the program has always been more relaxed than PPP.
"The reason why nobody is selling a lot of demand with a high sense of urgency today is because this is a tool to get liquidity for several years," a senior bank executive told the Financial Times last month. "It's not like PPP where there’s a fear the money is going to run out."