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Following messy start, enormous Paycheck Protection Program shows signs of buttressing economy

The Paycheck Protection Program had a rocky start, partly due to President Trump’s vacillation on support for it.MANDEL NGAN/AFP via Getty Images

WASHINGTON — After a flood of complaints, balky computer systems, changed rules, and frantic calls to the Treasury Department, the federal government’s small business Paycheck Protection Program is suddenly looking like a measured success.

The US economy buckled in March and April amid the coronavirus pandemic, but it appeared to regain some of its footing in May, adding 2.5 million jobs. The economy remains extremely weak, with a high unemployment rate and a surge in Americans seeking assistance. Many economists think conditions will remain shaky for at least another year.

But they also think things would be even worse without the giant corporate loan forgiveness program, which Senator Marco Rubio, a Florida Republican, shepherded through Congress and then helped defend during chaotic weeks of implementation.


Getting to this point strained the government, the banking industry, and small businesses, with many missteps and pivots along the way as they tried to build a program from scratch. And the Trump administration vacillated wildly between trying to rush money out the door and then trying to tighten rules, enraging lawmakers such as Rubio, confusing borrowers and nearly overwhelming banks, even those with small business expertise.

‘‘It was like saying, ‘I want my locally owned farmers market to work like Walmart or Amazon,’” said Alicia Wade of Oklahoma City’s Valliance Bank, which processed 178 loans the first weekend the fund opened. ‘‘It’s not feasible.’’

Confusion engulfed the program from the outset.

One week before the program began, a bank lobbyist group wrote to the Treasury Department warning of a major flaw.

Treasury was not planning to waive strict criminal penalties for lenders who did not thoroughly vet their new customers. The banking group warned that leaving the rules in place would require a level of vetting that they couldn’t quickly provide. The PPP was established as part of the $2 trillion Coronavirus Aid, Relief and Economic Security (Cares) Act.


When the PPP began accepting applications on April 3, the bank lobbyists’ prediction proved true. Rather than covering all businesses that qualified, much of the funding went first to the customers the banks already knew and trusted — including large corporations — igniting a public firestorm that outraged tens of thousands of business owners still desperately awaiting funding.

This created a logistical and public relations nightmare, with many smaller companies sidelined while larger firms found easy access to the money. Treasury had to make repeated changes to the program and eventually ask Congress for more money before many of the problems were ironed out.

Two months later, the PPP has directed more than $530 billion to 4.5 million companies, and economists, business leaders, White House officials, and lawmakers from both parties think it helped stabilize the economy. Because the government has released no detailed information about how many jobs the program has saved, it’s still unclear whether it achieved its primary goal of apportioning the lion’s share of the money to workers.

The program is now about to enter a new stage, as many of the companies that received loans will begin applying for loan forgiveness to determine whether they have to repay the money. The program will also face its first congressional hearing on Wednesday, when Rubio will call Treasury Secretary Steven Mnuchin, who had appeared skeptical about creating the program while the legislation was being drafted, and Small Business Association head Jovita Carranza to testify.


Rubio said in an interview that part of his inquiry will focus on ‘‘some early regulatory decisions, made or not made, that could have provided a little bit of clarity on the front end and sort of prevented some of the issues that happened.’’

Many of the Paycheck Protection Program’s initial problems can be traced to its hurried creation in the frenzied days and nights of negotiation that led to the passage of the Cares Act, which was rushed together to arrest the economy’s sudden free-fall.

Congress created the program in March with very loose restrictions, an attempt to give the Trump administration flexibility to spray billions of dollars across the economy as quickly as possible to try to contain a tidal wave of layoffs.

The Small Business Administration, the government’s smallest Cabinet-level agency, didn’t post the rules for the program until the night before it went live, a day when 1,363 people died of COVID-19 and the numbers were on the rise. At agency headquarters on launch day, the SBA’s software for processing applications repeatedly malfunctioned, creating a massive backlog. Large banks, leery of inadvertently misusing taxpayer money, waited for more clarity from the government before they started lending. Community bankers asked staff members to work overtime, but even the most successful ones say it was nowhere near enough.

Although the program was designed so that companies with 500 or fewer employees could tap up to $10 million in forgivable loans, it was clear that bigger companies could access the program as large chains began announcing in securities filings that they had received millions in funding.


Facing public backlash about concerns that large companies were taking taxpayer money, Mnuchin urged well-capitalized businesses to return the money they’d received and said that all loans over $2 million would be audited.