111 K Street NE
Washington, DC 20002
- Toll Free 1.888.564.6273
- Local 202.783.3870
It is evident that the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been far from smooth at best to devastating at worst. Throughout the past few weeks, as the law has gone into effect, many provisions have sparked serious debate over the incentives they create for the private sector, the efficacy of various programs, and the equal application of loans and grants across America.
Of specific interest is the Paycheck Protection Program (PPP), which is considered by many as the bulk of the CARES Act, aimed at keeping businesses afloat through forgivable loans, if used to cover certain qualified expenses during the coronavirus pandemic. However, the Small Business Association (SBA), an independent agency designed to provide support to entrepreneurs and small businesses but was tasked with implementing the massive PPP, has been mired with problems.
The PPP loan guarantees are available for businesses with 500 or fewer employees, 501(c)(3) nonprofits, sole proprietors, independent contractors, and self-employed individuals through the SBS's 7(a) loan program, which was woefully unequipped to administer the initial $349 billion of loans that the PPP made available. Beyond these administrative hurdles, though, the SBA also has made arbitrary judgments about which businesses should qualify for the loans, in its own agency rules.
One major, glaring issue that has arisen out of regulatory implementation of the PPP is explicit discrimination against businesses based on who the owners are. This has manifested itself in many ways, unfortunately. Regardless of one’s opinion on the legitimacy, efficacy, or merits of the PPP, it can be widely agreed upon that government programs -- much like the tax code -- should not single certain groups out for any reason, whether to specifically help or specifically harm those groups. In the implementation of the PPP, singling out has unfortunately occurred.
Without a doubt, the private equity industry has been under attack from the likes of Sen. Elizabeth Warren (D-Mass.) for a long time now. In her mind -- and those of other progressives -- punishing success and investment is a worthy cause. However, she couldn’t be more wrong. Investment, and the resulting success, is what makes our economy go round. And private equity is a significant part of that, which should be encouraged, not discouraged.
Sadly, this type of singled-out attack against private equity has seeped into the coronavirus response, with the SBA’s “affiliation” rules barring tens of thousands of small businesses in our country that are backed by investors from accessing PPP loans under the CARES Act. These are small businesses like any others. There is no policy reason that the government should treat certain small businesses differently because of who their owners are. They employ Americans all the same and contribute to our economy in their own unique ways. These affiliation rules can -- and should -- be waived.
The SBA has also created a discriminatory policy for certain small businesses by excluding whole companies from PPP loan eligibility if any owner of 20 percent or more is currently involved in the justice system or has a particular criminal background. The rule dictating this states that such businesses are ineligible if “[a]n owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years.”
Especially during April, which President Trump has named “Second Chance Month” to lift up those who have gotten caught up in the justice system but who have successfully reentered society, such a policy is unacceptable. Once again, this rule can -- and should -- be reversed.
The coronavirus and the government-mandated lockdowns do not discriminate against businesses and employees based on company ownership. Until we #ReopenAmerica, relief must not discriminate either.