Hundreds of Companies That Got PPP Loans Have Gone Bankrupt

Mish

Recipients of PPP loans have filed for bankruptcy after the money ran out.

At least a Half Billion in PPP Loans Won't Be Repaid 

Hundreds of companies employing 23,400 people went Bankrupt after PPP Funds Ran Out.

The total number of companies that failed despite getting PPP loans is likely far higher. The Journal only analyzed the big borrowers from the program, which accounted for about half of the overall loans though only about 13.5% of the total participants. And many small businesses simply liquidate when they run out of cash rather than file for bankruptcy.

The SBA has only released data on the largest borrowers, which the Journal linked to bankruptcy filings.

About $525 billion in loans were distributed to over 5 million companies between April 3 and Aug. 8.

At least 285 medium-sized companies went under. Undoubtedly thousands of smaller companies did as well.

PPP Program Fatally Flawed

I never understood giving money to corporations so they could pay workers. 

The workers were covered by state unemployment insurance, plus pandemic assistance. 

Many people made more money being unemployed than than they did working thanks to $600 in weekly pandemic assistance checks.

Moreover, the program was fertile grounds for fraud. Many companies opened businesses to take advantage of the guarantees. 

Evidence of PPP Fraud Mounts

Please consider Evidence of PPP Fraud Mounts, Officials Say

The Small Business Administration’s inspector general, an arm of the agency that administers the PPP, said last month there were “strong indicators of widespread potential abuse and fraud in the PPP.”

The watchdog counted tens of thousands of companies that received PPP loans for which they appear to have been ineligible, such as corporations created after the pandemic began, businesses that exceeded workforce size limits (generally 500 employees or fewer) or those listed in a federal “Do Not Pay” database because they already owe money to taxpayers.

Several hundred PPP-related investigations have been opened, involving nearly 500 suspects and hundreds of millions of dollars of loans, according to the Federal Bureau of Investigation.

Some Democratic lawmakers and others have voiced concerns that the SBA’s refusal to release the names of all borrowers would make detecting fraud more difficult.

That issue might have been resolved last week, however, when a federal judge sided with news organizations including Dow Jones & Co., publisher of The Wall Street Journal, that argued the SBA was legally required to disclose the borrowers.

More Shutdowns Means More Bankruptcies

  1. Ohio Gov. Restricts Weddings, Threatens to Close Businesses
  2. 24 States Reach Their Highest Level of Covid Hospitalizations
  3. Utah Governor Mandates Masks and Restricts Gatherings
  4. El Paso Shut Down as 10 Mobile Morgues Fill Up

Also note 83% of Passengers Will Not Return to Old Travel Habits

States are increasing lockdowns again except this time there is no program in place to deal with the mess.

Bankruptcy counts will soar. What a disaster.

Mish

Comments (32)
No. 1-19
Haze90
Haze90

I wonder if the lock downs would cause businesses and people to lose their jobs despite loan...... hmmmm

Tengen
Tengen

Money well spent! We're not quite back to TARP level fraud, but maybe we can get there in the next round of play.

We should have TV commercials for the Fed, where Jerome can reprise the 1980s "time to make the donuts" role from Dunkin Donuts. A haggard looking Powell could shuffle around day and night, rain or shine, muttering "time to print the money" in a monotone voice. It'd be better than most of the stuff on television today!

Felix_Mish
Felix_Mish

Can you imagine the bureaucrat who had to throw that cash to 5 million companies? Poor bastard's arms and hands must have been windmilling around about a thousand miles an hour.

Oh well. Doesn't MMT teach us the money must all come back?

Eddie_T
Eddie_T

We’ve been lucky....we still have some income...but our capacity to do work efficiently has been affected...our speed of normal operations has slowed down...I am not bankrupt. The PPP money helped a lot..but it’s gone..and if we have another lockdown it remains to be seen how well we might weather that. I am down to the last 10K of my EIDL money. I would not have spent it if I hadn’t needed to.

But on the upside...I completely resisted the overwhelming urge to buy a yacht with the bailout money . It all went to payroll and taxes. :)

I hope the PPP loan is forgiven...I do not consider that a given.....I have a 3 year note right now that has $3500 monthly payments beginning when the grace period ends in a few months. I’ve been waiting to apply for forgiveness....hoping it would get easier or more streamlined. It hasn’t..Not for the size loan I have, as of yet, AFAIK.

If we can stay as busy as we are now we will survive...but if we have to do a partial or full shutdown we might have problems.

And debt sucks for this purpose.....operating expenses...not a good long term strategy to borrow for that. It means you’re going bankrupt, even if you aren’t there yet.

I should be using debt to invest in the equipment or the physical plant.....if I wanted to carry practice debt at all at my age. I had very little practice debt going into COVID, which was and is a blessing.

ToInfinityandBeyond
ToInfinityandBeyond

Hate to say it but the handling of this whole COVID outbreak has been a complete disaster. From this retiree’s perspective this has been nothing more than an excuse to transfer billions to the rich further exaggerating the wealth inequality in this country while leaving those on the lowest rungs of the ladder to suffer disproportionately from the COVID outbreak. Future generations will look back on this period in history and say wtf.

Dodge Demon
Dodge Demon

Peter Schiff predicted this 6 months ago. In fact, he gave a “how-to” on a podcast at that time, using a typical restaurant business, owners taking money and run.

EGW
EGW

Government incompetence at its finest.

Greggg
Greggg

People wait and wait, but the helicopter is not going to come back.

bobbyvelvet
bobbyvelvet

My local regional bank made me fill out all the required forms and then some. Loan was delayed for detailed explanation of calculations for ultimate loan amount. They are a long time SBA lender which is good business (guaranteed no losses) if all the I's are dotted and T's crossed. The banks should have been the gate keepers and had skin in the game. The process was nerve racking while trying to maintain an essential business. Hard balancing act to get that volume of loans processed timely.

Sechel
Sechel

it was clear to me from the beginning that we were better off extending unemployment benefit than funneling money through the companies. in the end jobs were not protected and the companies failed anyway. not a solution one would expect from a republican administration but rather crony politics

KidHorn
KidHorn

More evidence that shutting down was a terrible idea. Most of the highly vulnerable were retired and could easily quarantine themselves if they chose to. No need to stop those <60 from doing normal activities. The bulk of the workforce and shoppers.

Allowing elderly and other high risk people who currently worked to get assistance via some special vehicle would have made a lot more sense.

KidHorn
KidHorn

Who takes the loss on the loans? Do the banks have the loans on their books? If so, will the FED buy the PPP loans from them like they did with the housing crisis?

Rocky Raccoon
Rocky Raccoon

Remember, there was only one member of Congress who tried to point out how absurd this massive spending bill was. That was Thomas Massie and he was attacked by both parties for advancing such warning.

Optimus Prime303
Optimus Prime303

Have you seen some of the videos coming out showing what some of these businesses did with the money? One guy bought a brand new Ferrari, dozens of others went on super lavish vacations. These small businesses didn’t want to stay in business, they just wanted free money.

Jackula
Jackula

We seem to have forgotten what capitalism is in this country. A better way to have handled this would have been to give everyone a 2k per month basic income, then claw it back from those that did not need it on a following years tax return. This way businesses would arise that serve the current demand and the death and birth of business, the capitalist business cycle will be allowed to operate providing much greater efficiency. Instead we operate like a third rate bananna republic.

Casual_Observer
Casual_Observer

This was directly managed by Trump and Mnuchin. People will blame government but let us squarely put the blame where it belongs.

Casual_Observer
Casual_Observer

The only good news is new data on the Pfizer vaccine says 95% rather than 90%. Even if its only 80% life will go back to normal sooner than people think. Biden will institute the defense production act for vaccines and things will speed up. Then people will wonder why Trump didn't do it. Trump and his admin have failed at every turn. Ironic the company that came up with the vaccine took no federal dollars.

frozeninthenorth
frozeninthenorth

I don't know mish but 285 out of 5 million -- that looks rather good to me! I would have expected 1% default rate or 50,000 companies. Frankly, the losses total are statistically insignificant.

Granted private companies would simply liquidate and not declare bankruptcy. Your point is valid since no one knows how many went under. However, if you think about it that's exactly what a government program is best at, the unknowable risks with Covid-19 made it a perfect example of government intervention since the private sector cannot assess the risk, and therefore did not participate.

This is literally the definition of how best a government should intervene in the private sector --to assume unknowable risks


Global Economics

FEATURED
COMMUNITY