The Small Business Administration (SBA) disclosed the names of nearly 700,000 businesses that received Paycheck Protection Program (PPP) loans between $150,000 and $10 million. Now, the Pandemic Response Accountability Committee (PRAC) has demanded the SBA to release the names of borrowers who received PPP loans in excess of $25,000, citing the Federal Funding Accountability and Transparency Act (FFATA).
PRAC consists of 21 inspectors general from various agencies and provides oversight of the $2.6 trillion Coronavirus response fund provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). While PRAC’s efforts are driven by its mission to root out misuse of CARES Act funds, its oversight effort is likely to affect a large number of small businesses given that only about 13 percent of loans exceeded $150,000. Instead, PRAC’s efforts would be better spent on the recipients of larger loans, which account for over 70 percent of total funds, such as: Kanye West, 45 top U.S. law firms, and companies partially owned by Jared Kushner’s family, among many other “companies with ties to the White House, members of Congress, and prominent billionaires.” The following chart illustrates the breakdown of the PPP loans:
Congress established PPP as part of the CARES Act to offset the economic impact of COVID-19. As incentive for employers to keep their employees on the payroll, PPP allows small businesses to obtain uncollateralized loans with an interest rate of only one percent. Businesses may borrow roughly ten weeks’ worth of pre-COVID payroll expenses. The PPP loans are eligible for full forgiveness if employers do not reduce their personnel; use at least 60 percent of the loan on payroll; and payoff mortgages, utilities, and lease payments.
The stimulus package offered a significant amount of financing: $659 billion in loans across two tranches, of which only 20 percent remained unused. A recent study noted that PPP loans have considerably helped small businesses: “PPP loans led to a 14 to 30 percentage point increase in a business’s expected survival.” The SBA and Treasury Department also reported that out of the 59.9 million workers that small businesses employ, “PPP loans are supporting about 51.1 million jobs, as much as 84% of all small business employees.”
PRAC’s request to release names of recipients of loans under $150,000 creates serious privacy and competitive disadvantage concerns for borrowers. For example, since the amount of PPP loans are calculated at 250 percent of monthly payroll, publicly disclosing the names of borrowers will indirectly provide confidential information about small business owners’ personal incomes and their employee’s salaries, information that the Freedom of Information Act (FOIA) typically protects.
FFATA requires disclosure of the entity receiving an award, the transaction type, the awarded amount, the federal agency providing the award, and the award recipient’s location for all federal funds recipients accepting at least $25,000. The disclosures are subsequently publicly listed and searchable. FFATA’s goal is to allow every American citizen to hold the U.S. government accountable for each spending decision. At the same time, however, FFATA allows agencies to withhold data protected under FOIA. Therefore, in August, the SBA argued in court that the “loan amounts are not disclosable under FOIA because of business confidentiality.”
In evaluating the effective and proper use of CARES Act funds, government regulators and oversight officials should provide adequate transparency while ensuring that crucial data disclosures do not compromise proprietary information of small businesses that are already on their knees as a result of the COVID-19 shutdown and struggling with getting their PPPs loans forgiven.