PPP Round One and the Reputational Damage Done

So Paycheck Protection Program (PPP) round one is over, and what a storm it was. Some things went well, others went badly. These are worth considering somewhat closely. After all, there is at least another US$250 billion coming down the legislative pipeline. We are going to be at this for at least a few more weeks, maybe even a few months, if COVID-19 spikes in late fall, as did the Spanish flu in 1918. 

First, the things that went well with PPP. The U.S. federal government, in an effort to fund the paychecks of millions of Americans at risk of losing their incomes, booked US$350 billion in loans to business for the express purpose of funding their payrolls because the social distancing that’s required in response to COVID-19 has pressed the pause button on the economy. But wow, was it messy. I continue to rely on a silly but apt analogy: It’s as if big-government policy and agile software development had a baby and called it PPP. Favorable among the outcomes was speed: US$350 billion in loans issued in 14 calendar days—an enormous amount of debt in the economic blink of an eye. And it was smartly structured. As long as at least 75% of the proceeds of a PPP loan are used for payroll and the remainder is used for things like interest and rent, the loan is converted into a grant, and thereby forgiven. One can debate whether the debt should have been repaid over a number of years. But all in all, it’s not a bad way to grease the wheels of America’s payroll machine: small businesses.

The vendors of PPP systems, it should well be noted, really stepped up to the plate. Many had capabilities prebuilt and ready for customization at the edges, prior to the finalizations of the language and funding of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, of which PPP is a part. For most vendors, this was the result of an all-hands-on-deck, multiday siege in which a variety of employees put in strings of 18-hour workdays. The capabilities performed well and were up and running at hundreds of banks within days. Some vendors, mindful of the social import of PPP, offered their capabilities at extremely attractive pricing. This was an industry seeking to be part of the solution, not part of the problem.

Now for the things that didn’t go so well. There were glitches of course, because there are many characteristics about things agile and things big government that coexist poorly. The program launched with ambiguities and confusion about how to calculate the maximum permissible amount of a credit seeker’s loan, a multiple of payroll. The Small Business Administration’s (SBA’s) site ran slower than the digitalization machines of lenders, as the SOAP APIs of the former couldn’t keep up with the REST APIs of the latter (there’s some real jargon irony for you there). And sites seized up at the SBA, the lenders, and their vendors. But these three entity types, along with industry players such as the Independent Community Bankers of America, impressively and tenaciously worked a lot of it out in a way that was, well, very agile and improvisational given the program’s epic scale.

But one aspect that went badly—and shouldn’t have—was the overall perception of the program. Following the many reports of hung-up websites and processes that were frustrating or confusing or both, were reports that huge borrowers such as Ruth’s Chris Steak House were getting large loans, and easily. The SBA could have and should have gotten in front of this to prevent an ugly and inaccurate perception from overtaking a far more favorable reality. Because for many of us discerning adults, and contrary to the cynics, perception is actually not reality. As of April 13, 2020, just two days before PPP tapped out, 85% of the loans by count were for US$350,000 or less: that’s for companies with weekly payrolls of US$35,000 or less—the intended recipients of the loans. So unless something algebraically zany happened in the last two days of the program, a few journalists seized on a few outliers in the PPP loan portfolio, went on TV and stirred the muck, and frustrated PPP applicants became outraged. Unhelpful and uncool indeed, given the pandemic that’s underway and the attenuating tsunami coursing through the economy. Insufficient PR action at the SBA has now saddled PPP with that ugliest of monikers: rigged against the little guy. Unfortunate indeed.

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