Why Small Business Loans Don't Get to the Intended Recipients


Small businesses, the intended recipients of a Congressional Covid-support mechanism struggle to get money. Let's investigate why.

The New York Times has an interesting article Denied, Deferred and Ignored: 13 Applications, and No Relief.

The article discusses the plight of Graceann Dorse and her husband, Christopher Webb, who built a cinematography and special effects firm, FX WRX, in New York.

“The work we do has to be done in person, with a large crew,” said Dorse. So they are shut down with no income.

Three-fours of small business loans were from small companies, but they account for only 17% of the  loans. 

“You can see that there’s a real skew in there,” said John Pitts, former deputy assistant director of intergovernmental affairs at the Consumer Financial Protection Bureau.

What we heard universally is, most people weren’t able to get a loan under $50,000,” Mr. Pitts said. “The banks just weren’t set up to do loans that small.”

Too Small, Too Different to Bother

Dorse applied in 13 different places, all rejected. The couple were the company’s only full-time employees.

The program was supposed to benefit the self-employed, but it didn't. 

Lack of Regular Salary

Lack of a regular salary was the second red flag. They did not pay themselves a regular salary. Like many small-business owners, they took distributions from the company and reinvested capital into the business.

Again, that was not supposed to matter, but it did.

$350 Billion Used Up

The first Small Business program of $350 billion was exhausted last Thursday. 

Thousands of applications are in the queue.

New $320 Billion Program 

There is a new $484 billion program on deck of which $320 billion is intended for small business loans.  Of that $60 billion is earmarked to assist small businesses that don't have established relationships with big banks.

Good luck getting it.

The Queue

I have a friend trying to get a loan. He is in a similar situation as Dorse. 

His relationship is with Fifth-Third Bank. Fifth-Third informed him there are 33,000 applications already in the queue ahead of him.

Who Got the Loans?

Business Insider reported Trump's restaurant recovery plan is built on fast food, as independent restaurants struggle to survive.

President Trump — a noted fast-food fan — is creating an economic recovery plan that puts the country's chains front and center. The council is made up of men who founded or lead organizations including:

  • 1 regional chain (Ray Washburne, CEO of M Crowd Restaurant, who was the vice-chair for the Trump Victory Committee and has donated thousands of dollars to Trump and the Republican party)
  • 5 fast-food chains (McDonald's, Chick-fil-A, Taco Bell and KFC parent company Yum Brands, Wendy's, Arby's and Sonic's parent company Inspire Brands)
  • 7 other chains (CEOs from Olive Garden parent company Darden, Subway, Outback Steakhouse parent company Bloomin' Brands, Papa John's, Waffle House, and Starbucks, plus Jimmy John's founder)
  • 3 beverage and packaged food giants (Coca-Cola, PepsiCo, Kraft)
  • 3 industry groups (National Restaurant Association, National Association of Wholesaler-Distributors, International Franchise Association)
  • 4 fine-dining empires (Wolfgang Puck, Thomas Keller, Jean-Georges Vongerichten, and Daniel Boulud)

Those groups are not exactly what people think of as "small businesses". 

Shamed Into Returning Loans

Shake Shack got $10 million out of the program, but has since been shamed into returning the money. 

Fast-salad chain Sweetgreen which was approved for $10 million did the same. Sweetgreen is not a public company but has been valued at well over $1 billion by Wall Street investors. It cancelled the loan.

Kura Sushi USA is worth $88 million and is the U.S. subsidiary of a Japan-based conglomerate that has more than 400 restaurants. The rules of the "Cares Act" allowed it to apply for a loan. It got $5.8 million, cancelled yesterday.

First Come First Serve

The larger the business, the faster the application and approval.

From a bank perspective, this actually makes sense. 

If you were a bank, would you rather make 1 loan for $10 million or 500 loans for $20,000?

What Happened Synopsis

  • Congressional loopholes on purpose
  • Non-small businesses were first in line, and for big loans
  • Money was quickly exhausted 

But the queues are still enormous. 

Banks still have a preference for larger loans. 

What's Going to Happen?

  1. A repeat of the the first program minus places like the Shake Shack.
  2. Money will run out because the queues are already overloaded.

Because Dorse was mentioned by the Times, I bet some big bank seeking positive publicity steps up and gives them a loan.

But good luck to the likes of my friend at the tail end of a 33,000 queue at Fifth-Third Bank and others in similar shoes.

Better Description of What Happened and Will Happen.

It's the government and the Fed, stupid! What did you expect?

Economically, What's Next in General?

On March 23, I wrote Nothing is Working Now: What's Next for America?

I noted 20 "What's Next?" things.

Covid-19 Recession Will Be Deeper Than the Great Financial Crisis

On April 1, I commented, the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis. Do not expect a V-shaped recovery.

Forever Changed

  • More teleconferencing and fewer corporate lunches
  • Less air travel, hotels, and car rentals at the personal and business level
  • More work at home
  • More do-it-yourself haircuts, nails, lawns, etc.
  • Fewer car purchases
  • Fewer home purchases
  • Accelerated online shopping and more mall closures

The knock on impacts of all of those means more bankruptcies and less employment..

Note: In case you missed the announcement, I am now on TheStreet.com/Mishtalk

The redirect is automatic and there will be no lost articles or lost comments to articles. My "room" on TheStreet will remain free of charge.


Comments (43)
No. 1-19

Structured to put the little businesses out of business and keep the selected corporate to dominate the landscape. Corporate/Crony Cares Act.

Tony Bennett
Tony Bennett

"Let's investigate why."


335 pages

That is how many pages of fine print legalese the bill contains. A bill that size you know is chock full of corporate bailout / give away / and sundry lobbyist wet dreams.

Tony Bennett
Tony Bennett

"Good luck getting it."


Meanwhile the clock is ticking ever louder on cash / credit burn by small business. Many have closed. Many will close ... as they won't get funds or it will be too late.


According to our governor, over 80% of the payroll in my state is now covered by these loans. I submitted my application on Wednesday afternoon, and it was funded by first thing Thursday morning. Yes, it was over $50,000, but barely over, and I have no reason to believe that mattered. I went through my local bank, who I regularly do business with, but I got many solicitations from finance companies and the like who wanted to process it for me. In our state, we have a strong network of small bankers, and they are committed to helping small businesses. I'm sure that helps.

Don't believe everything you hear. Yes, small businesses can get these loans, especially if they are working with a local bank committed to the process.



Fed highly unlikely to enforce negative rates. anyway.


The answer to why so many intended recipients of loans didn’t get them and so many unintended recipients did get them starts with the poorly written law from congress. They were in such a hurry to get a bill passed, they didn’t worry about hedge funds getting small business loans or the self-employed not getting loans. They lambasted Congressman Thomas Massie when he sought to examine the language of the bill more closely. If the law had been written properly, we wouldn’t be having these problems. But that would require a competent congress...

By the way, the banks reportedly made $10 Billion in commissions on these SBA loans.


"The Queue"

I believe Bruce Wilds said there were some 30 million small businesses.


Time to end the forced shutdown and bailouts.

Let the worst go under and let the economy tank along with prices. Once prices get low enough, consumers and investors will step in and revive the economy.

That's what worked well during the depression of 1920-21, the last time the US government stayed out.


small business is just not in Trump's DNA. These were the guys he took advantage of when doing construction. He likes celebrities and large successful people. For him its like a club and he enjoys associating himself with that clique so no I'm not surprised. He's also looking for one hand washes the other looking for campaign donations and endorsements something that small business doesn't really provide


@Mish Editor You left out a big piece of the story.

Trump refused oversight!!!

WASHINGTON (AP) — President Donald Trump has removed the inspector general tapped to chair a special oversight board for the $2.2 trillion economic relief package on the coronavirus, the latest in a series of steps Trump has taken to confront government watchdogs tasked with oversight of the executive branch.


Big organizations like to deal with big organizations. Small with small. Now, what kind of organizations would the US government want to deal with?

Nothing either new or unique here.


I own a small childcare center in NC with 10 employees and got approved for a $39,000 paycheck protection loan on the first round. Loan approved on a Wednesday money deposited the next day.

Luck, maybe, but also the fact that I used my small regional bank who helped push it through quickly. My mother in law works at a daycare that's still waiting and they applied before me but bank with a large bank and have had a horrible experience.

Finally, my sister in law is regional manager of 8 McDonald's in the area and told me all owner operators were sent a memo in early April to apply for the loan whether they needed the money or not. Don't know if they all applied but I imagine most business owners aren't going to turn down a loan that's promised to be forgiven if you rehire employees by June 30th. Even if not forgiven 1% is a steal, so my bet is they took it.


Well, I agree real small businesses are getting screwed. But, in defense of large businesses, they are usually the 'real innovators' in the USA. See the book by economist Tyler Cowen of MarginalRevolution (where I frequently comment at) for more information, called "Big Business: A Love Letter to an American Anti-Hero". That said, I agree that if the purpose of the grants, of soon to be close to $1T, was to help real small businesses, they've failed. In fact, as Mish and most of the commentators here say, the effect of the Covid-19 crisis will be to help large businesses, further concentrating economic life. I sometimes live in the Philippines (I'm a Greek-Am) and if you read Joe Studwell's book, you'll find that fifty leading families pretty much control most of the business in SE Asia. Is that coming to the USA? Probably. Economies of scale of the kind that happened in the late 19th century. Does that mean that the 19th C "Robber Barons" were right and Ida Tarbell and the "muckrakers" were wrong? Probably. After all, Upton Sinclair was a diehard socialist. But I'm afraid most people don't like Big Business and in the name of 'helping the little guy' we're likely to have even bigger government in the USA. OK time to hit the Enter key and get off my soapbox...

Mad Dog 2020
Mad Dog 2020

Silly rabbit, bailouts are for banks... The Feds really just want to be sure the biggest debtors out there can survive to keep rolling over their loans, thereby keeping the financial system from collapsing. None of this is really about small businesses - they are only an after-thought in all of this.


I would add that what most people don't realize about the PPP program is that any help that this gives to small businesses is incidental. The money it not intended to go TO the small business. The money is intended to flow THROUGH the small business. The money is forgiven only if is primarily used to pay employees the same amount they earned last year, even if they are not working.

The business does pick up some loose change, here. They get to use a small portion of it to pay rent, mortgages, and utilities. Also, any revenue they make during the 8 weeks is more profitable than usual since they have no labor expense. That's great, but most small businesses have virtually no revenue at the moment.

In the end, a small business that "borrows" $50,000 will have to flow $40,000 to employees, and then have to pay the payroll taxes on that out of pocket. $10,000 or so will go to the small business itself. I did one of these "loans", and I expect to get a small benefit form it, but the main reason I did it was to help my employees who have been struggling with about half pay for the last couple months.


Good coverage. What a mess! Clearly the solution is to stop this draconian shut down and get people back out to normal life. High risk people can stay home as much as possible and we can leave this cowardly chapter in world history behind ASAP. (Oh, and fire Birx and Fauxi while you are at it!)


I think that happens because of corruption, maybe. You need to create your business with the help of qualified and well-known service that will help you to found your company. This incorporation in hong kong is the best one that I've ever seen. You can use it if you want, Wish you good luck.

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