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House Democrats Call for PPP Reforms to Improve Small Business Access to Loans

May 13, 2020
Press Release

(WASHINGTON, D.C.) – Congressman Jamie Raskin (MD-08) joined Congresswoman Yvette D. Clarke (NY-09) in sending a letter to House Leadership urging reforms to the Paycheck Protection Program (PPP) to better direct funds to the small businesses most acutely impacted by the coronavirus pandemic. The letter was also signed by Representatives André Carson (IN-07), Gil Cisneros (CA-39), Angie Craig (MN-02), Eliot Engel (NY-16), Adriano Espaillat (NY-13), Eleanor Holmes Norton (DC-AL), Hakeem Jeffries (NY-08), Carolyn Maloney (NY-12), Grace Meng (NY-06), Alexandria Ocasio-Cortez (NY-14), Jan Schakowsky (IL-09), Darren Soto (FL-09), Adam Smith (WA-09) and Jackie Speier (CA-14).

The Members wrote: “This crisis has created an unprecedented economic crisis with over 30 million Americans losing their jobs in just over a month erasing all job gains from the recovery.1 In a period of historically low interest rates, large corporations with access to bank loans and the capital markets have optionality in their battle to stay afloat. Small businesses, on the other hand, do not have such flexibility as they operate on smaller margins that cannot similarly accommodate unexpected disruptions in business.”

After two rounds of PPP funding, large financial institutions have failed to equitably distribute loans to the businesses most in need. Instead, they have continued to lend primarily to their largest, most lucrative clients. Large financial institutions have a vested interest not to lend to local small businesses when they have more lucrative alternatives. Writing a single $10 million check to a large national food chain generates the same volume as 100 loans to small local restaurants with the added benefit of fostering a relationship with a valuable client. As long as this is true, in the absence of further regulation the large banks will continue to lend heavily to their concierge clients regardless of whether or not that crowds out lending to smaller borrowers.

The letter urges Leadership to include language in forthcoming stimulus legislation requiring:

  • A carve out of funds for loans exclusively for businesses with less than $1 million in annual revenue;
  • A carve out of funds for loans exclusively for businesses with fewer than 50 employees; and
  • Streamlining the application process for small businesses that do not have the logistical capacity to compete with better resourced large businesses that had millions of applications prepared before the second round of funds were released crowding out their smaller competitors.

The scant reporting made available by the SBA shows the urgent need for this regulatory reform. While over 70% of approved loans have been for amounts under $50,000, these loans only account for approximately 16% of distributed PPP funds. However, over 45% of PPP funds went to loans over $1 million accounting for a select 0.07% of borrowers. Put another way, the banks provided more federally-backed credit to their largest 7,500 clients than they did to over 1.5 million small businesses teetering on the edge of collapse. We must take decisive action now to ensure that the big banks cannot similarly siphon off the next tranche of PPP funds solely to their most lucrative clients.

Clarke said: “As we do all that we can to respond to this unprecedented crisis, we cannot allow the urgency of the moment to distract us from what is happening on the ground. Congress designed the Paycheck Protection Program to give small businesses across the country the opportunity to keep their employees on staff and stay above water throughout the crisis. Instead of providing the assistance the public requires to stay afloat, large financial institutions have used the program as a veritable printing press for free money with no consideration for those in need. We must restructure the program to both give large financial institutions an explicit mandate to lend to small businesses as well as streamline the process to give local businesses a fighting chance to survive.”

The full letter is available here.

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