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COVID-19

As Feds go after PPP fraud, businesses apply for loan forgiveness

Justin Ho Sep 23, 2020
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A small boutique selling masks and gloves in Arlington, Virginia in April. Olivier Douliery/AFP via Getty Images
COVID-19

As Feds go after PPP fraud, businesses apply for loan forgiveness

Justin Ho Sep 23, 2020
Heard on:
A small boutique selling masks and gloves in Arlington, Virginia in April. Olivier Douliery/AFP via Getty Images
HTML EMBED:
COPY

The federal government is cracking down on alleged fraud in the Paycheck Protection Program. The Justice Department recently filed nearly 60 charges involving what it says are attempts to bilk over $175 million out of the program.

Meanwhile, legitimate borrowers are working to get their loans forgiven.

Justice Department lawyers said the defendants spent PPP money on home renovations, trips to Vegas, even a Lamborghini.

Randy George, co-owner of Red Hen Baking Co. and Cafe in Vermont, said it’s discouraging to hear stories like that. But it isn’t surprising.

“I think the way it was carried out allowed for a lot of abuse,” George said.

The program rolled out quickly. George said that helped businesses like his. He took out a PPP loan back in April because he needed the money fast.

“It was like, we take this money or we face potential closure,” George said. “I don’t know what we would have done.”

When designing relief programs, governments face difficult choices, said Kathryn Judge, a professor at Columbia Law School. If a program has a rigorous application process, a business might make one mistake and not qualify for aid. Judge said the government decided to make PPP relatively easy.

“As a result, we might have a little bit of fraud,” Judge said. “But the more important aim is to get a lot of money into the hands of a lot of small businesses in a very short window of time. And they really succeeded in that regard.”

Now the government’s dilemma is whether to make it easy to get a PPP loan forgiven. One idea is automatically forgiving loans under $150,000, a provision of the Paycheck Protection Small Business Forgiveness Act that’s been introduced to the Senate.

Robert James II at Carver State Bank in Georgia said that would help the bank avoid collecting on risky loans.

“If the government makes it onerous and difficult for customers to get the loans forgiven, then we’re gonna really have a very unstable, potentially harmful asset on our books,” James said.

He said right now, the forgiveness process is rigorous. Borrowers have to come up with documents proving they spent the money on payroll, rent and other approved expenses. But James said he knows his customers. 

“We’re very confident our customers did what they said they were going to do with the money, and so, we just don’t want to have to burden them further,” he said.

James said he’s advised his customers to hold off on applying for forgiveness until Congress weighs in.

COVID-19 Economy FAQs

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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