State AGs Urge PPP Changes
Colorado Attorney General joins group of attorneys general in asking for fairness and transparency

by Tony Flesor

State attorneys general from around the U.S. are urging the federal government to overhaul the paycheck protection program in order to protect small businesses.

Colorado Attorney General Phil Weiser signed onto a letter from Massachusetts Attorney General Maura Healey to congressional leaders expressing concerns about the program as it currently exists. And while the program has already seen one “enhancement” to provide more access to small businesses, there are still roadblocks, and still more areas to provide assistance.

“As state attorneys general, many of us have fielded countless grassroots-level complaints and requests for assistance relating to the program. Based on what we have learned, we believe certain key changes should be made to the PPP as part of any additional funding for the program,” the letter states. “There is little doubt that small businesses across the nation – and those they employ – are desperately in need of the infusion of funds the PPP was designed to provide.”

And both large and small companies would benefit from additional clarity and transparency, said Davis Graham & Stubbs partner Jeff Brandel, who is a member of the firm’s COVID-19 task force. Brandel didn’t comment on the AGs’ letter, but he did say businesses thus far have struggled with interpreting the various guidance and interim rules that have been issued from the Small Business Administration and Department of the Treasury, especially around qualification and whether there’s a need or necessity by a businesses and what that means.

The program was created April 2 to provide protection to businesses that were shut down as a result of coronavirus prevention efforts. The Treasury Department doled out $349 billion in its first round and is preparing to give out another $310 billion in a second round that opened up for applications in late April.

The initial round of funds were exhausted within a few short weeks. In its early days, the program was criticized for the amount of money given to large companies, and a lawsuit filed against large financial institutions including Bank of America, Wells Fargo, Chase and others, alleged that larger companies were given priority placement in making relief loans. Meanwhile, the economy has been launched into a recession that is expected to continue even after coronavirus restrictions are relaxed.

The second round of funds — labeled as the PPP Enhancement — sought to address some of the initial problems with the program by setting aside $60 billion for small businesses that don’t have relationships with large banks — those financial institutions with less than $50 billion in assets.

In Colorado, many areas have “reopened” yet many businesses, particularly restaurants, event venues and gyms, must remain closed indefinitely. According to data reported by the Colorado Sun, the federal PPPPaycheck Protection Program loaned $7.4 billion to 41,635 small businesses in Colorado, as of May 6.

As cited in the letter, more than 30 million people have filed unemployment claims. “The very survival of the country’s nearly 31 million small businesses, which comprise the core of our national economy, is at stake,” the letter states.

And while the state AGs cite the positives the PPP have provided for states, it details many “shortcomings” that they say should be eliminated going forward. The state officials cite the large-dollar amount loans that went to large companies: 45% of the funds in the first round went to loans of $1 million or more, “suggesting that larger, more well-connected companies may have been better able to navigate the application process.”

The letter details several areas where the program could be improved:

  • Limit access to those that need funding
  • Fair access
  • Ensuring fair distribution
  • Better communication with small businesses
  • More flexibility
  • More transparency
  • Improved technical support
  • Lender guidance
  • Assisting the unbanked and ensuring accessible lender alternatives.

Among details in those areas include suggestions that the program shift away from “self-certification” of companies that don’t truly need the funds and instead focus on fairness by prohibiting applications from publicly traded companies with alternative access to funds as well as setting aside money for minority-owned small businesses. The letter also suggests improving fairness, communication and transparency by removing any potential appearance of impropriety or favoritism from lenders and being transparent with taxpayers in showing no type of business or geographic area is underserved.

Brandel said the program would be improved by more clarity and transparency going in both directions — from the government to businesses and from the businesses themselves in their need for money and, if they take it, how it’s being used. “With what’s considered liquidity and access to liquidity that a business has, those seem to be very vague terms. It seems businesses are struggling to understand what those mean and how they’re going to be applied,” Brandel said. He went on to say businesses would be wise to keep detailed documentation about how any PPP money has been spent so they would be able to answer questions that come up.

The letter was submitted Wednesday to House Speaker Nancy Pelosi, House Minority Leader, Senate Majority Leader Mitch McConnell and Senate Majority Leader Chuck Schumer. As of yet, there has been no official response from the leaders or indication that the PPP might change for future disbursements.

To read other articles  featured in the May 11 print edition of Law Week Colorado, copies are available for purchase online.