While the country still wrestles with the COVID-19 pandemic, businesses are scrounging for money to keep their employees on payroll. If things continue on track without assistance, most businesses won’t be opening their doors back up on the other side of the lockdown. That’s where the Paycheck Protection Program was supposed to help.
The government plan allowed businesses to borrow money to help meet their bills. According to a class action suit against JP Morgan Chase and other banking giants, this didn’t happen. Instead, the biggest banks “prioritized corporate greed” over the paychecks of small businesses. The class action suit alleges that banks like Bank of America and Wells Fargo were preferential with the loans.
According to court documents, the biggest banks were much quicker to offer loans to their biggest clients. By the time the money ran out last week, the biggest companies eligible for the “small business loan” had soaked up the majority of the money. This means that numerous small businesses were left out in the cold entirely.
It doesn’t take an economist to understand how catastrophic it would be for the economy if small businesses all failed. Even the best finance advice in the world couldn’t help a city with zero small businesses operating. As such, big banks’ decision to prioritize large corporations over small businesses is as baffling as it is deplorable.
Large banks saw a profit to be made with the PPP loans. Working with this, they prioritized their largest clients when processing loans. When the money in the government fund was getting low, they made sure to put larger clients up first. JP Morgan Chase, for example, had an average PPP loan size of $515,300.
Meanwhile, the average sized loan from other banks was $206,000, under half that value. JP Morgan Chase decided to prioritize profits over everything. This ensured they maximized their loan origination fees, raking in cash. All while small businesses owners are struggling to make payroll for their employees. This is nothing short of reprehensible.
The PPP money was meant to be accessible only to businesses with 500 or less employees. However, the Small Business Administration allowed some exceptions, like hotel and restaurant chains. This resulted in some very large companies being eligible for millions of dollars in loans. And, as long as those loans are mainly used to pay employees, the loans are forgiven.
Notably, Ruth’s Chris Steakhouse and Pollo Tropical, which are not small businesses, got millions from the PPP. Shake Shack got $10 million from the program. However, Shake Shack’s CEO elected to return the money after hearing that many small businesses were excluded. Sadly, their example has not been followed.