Can Congress save US small businesses? FT reporters answer your questions

Why are many local shops in the US still waiting for funds while some big businesses have received multimillion-dollar cheques? Who is taking advantage of the Paycheck Protection Program, how are applications being handled and will things be any smoother when the next round kicks off, when Congress approves another $250bn in funding? 

Laura Noonan and Lauren Fedor, our US banking editor and our Washington correspondent, respectively, have been covering this story closely, tracking everything from the bumpy rollout of the PPP to wrangling on Capitol Hill over whether to approve more funding.

Today, they took some time to answer your questions. Here are a few highlights from the Q&A. You can read through them all in the comments below.

FT commenter Timothy Persson: Why were various companies with staff of more than 500 people able to qualify for Payroll Protection Programme loans in the first place? It would seem they do not come within the definition of a small business and yet somehow still qualified.

Lauren Fedor: Many of the larger companies that you read about, such as Ruth’s Chris Steak House or Shake Shack, took advantage of a loophole in the Cares Act, the legislation that set up the Paycheck Protection Programme, that allowed certain businesses, namely hotels and restaurants, to apply for loans so long as they did not employ more than 500 people “per physical location”. So even though some of these chains have more than 500 people on payroll nationwide, they have far fewer than that working at an individual restaurant. 

FT commenter gh: I’m a restaurant owner in New York City. We are located in Midtown where offices, hotels and theaters have all shut down. There is no pick-up and delivery business in the area right now and we have been closed for over a month. I expect to get the PPP loan in the next round — but what should I do with it? If I spend it on payroll, I still won’t have any revenues, and if I keep it to reopen when I’m able to, I’ll be saddled with a two-year loan that will be very hard to pay back. 

Laura Noonan: That’s a dilemma lots of businesses are struggling with, and one of the reasons the criticisms about the way the scheme has been designed. Spending it on payroll at least takes care of your people in the short term and it’s free money if you spend it that way. If you anticipate having higher costs when you relaunch, or needing money to fund a reopening for other reasons, have you talked to your bank about a regular loan for that? 

FT commenter Chris @ Longview Econ: Any estimates on how many small businesses likely need these loans — whether PPP or Economic Injury Disaster Loans? How many have got them so far? And how will likely get them in the next round? Plus please share commonly accepted definition of small business and how many of them are in existence. 

Fedor: We know that from the first tranche of $350bn in funding, the SBA awarded PPP money to 1.66m applicants from 4,975 banks and fintech firms. The SBA’s accepted definition of a small business is an independent firm employing fewer than 500 people — and according to their data there are 30.7m small businesses in the US, with nearly half of Americans working in the private sector working for small businesses. With a second pot of money — including $320bn for the PPP — likely to be approved by the House on Thursday, we can roughly expect similar numbers of businesses to get support from round two. But even round one and two combined would be a small fraction of the overall number of small businesses nationwide! 

FT commenter George: How did the Payroll Protection Program allocate money among the banks?

Noonan: For round one, it was down to whose applications got through to the Small Business Administration first. Some banks were more efficient than others at getting applications through their own processing system and into the SBA’s, but there was still a lot of luck and chance involved. I’ve heard lots of stories about submissions getting randomly rejected by the SBA’s ETran system, especially when banks try to batch groups of them together. The SBA didn’t discriminate among banks or allocate a certain percentage to individual lenders, geographies, industries etc. 

FT commenter SpaceBookPub: What is the difference between PPP and the federal disaster loan assistance for businesses? 

Noonan: The main one is PPP and doesn’t have to be paid back (if it’s used for approved purposes such as payroll) whereas EIDL is an actual loan with an interest rate of 3.75pc for regular businesses and 2.75pc for no profits. 

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