Due to the Coronavirus pandemic and to address the financial fallout experienced by many small business owners, the federal government instituted the Paycheck Protection Program. This program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was initiated in March to prevent further unemployment and ease the financial burden faced by many small business owners throughout the nation.

The program sought to prevent unemployment by allowing applicants’ loans to be forgiven if they were used to cover payroll and other specified expenses related to the pandemic. The program meant to support small businesses was exploited by several people who lied about having legitimate businesses and instead used the money for luxury items. Several of the loans were disbursed to large, publicly traded companies and financial firms instead of small businesses that truly needed it.

Program Offerings

The program allowed small businesses to borrow up to 2.5 times their monthly average payroll costs. The loan could be forgiven in full if the small business owner retained employees for at least eight weeks after the loan was procured. Small business owners could also put a portion of the loan toward rent, utilities, and other specified expenses. The program’s loan administration was outsourced to the Small Business Administration (SBA) and a network of banks nationwide. Due to the high demand for loans, the SBA and banks involved were overwhelmed with having to administer 10 times the volume of loans they were used to.

Issues Discovered in the Program

Lack of a definition of what constituted a small business in order to be eligible for the program led to many large businesses partaking in the loans, even if they were able to withstand the financial stress of the pandemic. This limited the funds available to small business owners who truly needed them

Banks were also uncertain about how the loans should be distributed and how they would be forgiven. Because the program offered immediate loan processing, many banks could not look over paperwork and lacked the necessary documentation and materials to process the loans at the scale and demand presented. Many banks were inexperienced in administering the loans at the scale required. They had to process loans rapidly for which they were not prepared