Video: PPP – Huge Success or Colossal Failure?
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RODERICK CARMODY: I’m Roderick Carmody and in this episode we’ll be discussing the Paycheck Protection Program. Was it a huge success or a colossal failure?
I’m joined today by Bruce Klein, a Partner in CrossCountry’s Financial Services practice, to discuss one of the most talked about acronyms these days. The PPP, the government’s Paycheck Protection Program for small businesses under the Cares Act, and to get a little bit of insight into the upcoming loan program that is Main Street lending.
Bruce, thanks for joining me.
BRUCE KLEIN: Hey Roderick, great to be with you.
RODERICK CARMODY: Good to see you. First question, have you made it past your mailbox today?
BRUCE KLEIN: Quarantine is getting a little tough here, but I got to bring my garbage pails back from the curb so that was pretty exciting today.
RODERICK CARMODY: Well done; you’re ahead of me. Bruce, we see a lot in the media about the PPP and the challenges around the program. First we heard that borrowers could indeed get loans and now we’re hearing that some of those companies are now giving the money back. We’d love to hear your thoughts and perspectives on the PPP.
BRUCE KLEIN: Yes, Roderick. That’s a great question. Really, your discussion, is it a big success or a colossal failure, it’s a little bit of both. And it’s quite nuanced. You think about it, between round one and round two with a PPP, four million loans have gotten made so far and still going. That’s astronomical. That’s amazing. I mean, SPA, all of last year originated 50,000 loans so you’re talking about 100x factor above that.
Banks really stepped up to the plate, they had their people working 24-7 on the weekends, and were able to get a lot of these loans out. Obviously, it started slow, there’s a lot of logistics and operational things they had to work through, but at the end of the day, four million-plus businesses have gotten the loans. So I think that’s the big success of it so far.
Now, on the other hand, what’s going on, we read in the media, Ruth’s Chris Steak House and Shake Shack and people are returning the money. Well, nobody really did anything wrong here. The way the legislation was written, it wasn’t that tight in terms of who was eligible. So if you read the law and said, I’m under 500 people, I’m hurt by this pandemic, I’m gonna apply. And they really did nothing wrong, but then so that the politics took hold. And who wants to bail out a company that has a brand name, or that has a private equity sponsor, or has maybe other ways to raise money and that’s fair.
So these companies, while they didn’t do anything wrong, are starting to return the money, and the guidance that came out on that came out late so nobody’s liable if you return the money. So I don’t know if I’d call that a failure; I’d call that a little bit of failure of trying to move too fast.
RODERICK CARMODY: And Bruce, I know you work with a lot of bank clients who are PPP lenders. What are they saying about the program?
BRUCE KLEIN: So that’s interesting, Roderick. You know, when this first started, they saw it as a chance to really be the essential workers of financial services. They were going to make these loans, get them out to the businesses in their community, and really help people with a life line. They pulled people off of their day jobs and everybody worked nights and weekends to get these done.
And they felt really good about it, but then when some of the questions started emerging, like, “Why did these people get loans and why not me?” “Did you really do it first come first serve?” “Did you care about the smaller business?” You know, they started to feel like, “Hey, we killed ourselves to make this program a success, and now we’re getting all sorts of questions that really are not necessarily fair,” and maybe, not having second thoughts about participating but feeling a little bit burned by the way is headed.
And to tell you the truth, that could have a chilling effect on upcoming programs like Main Street Lending.
RODERICK CARMODY: And so Main Street Lending, Bruce, this is a different program for larger businesses. And the key difference is this is not forgivable. Is that correct?
BRUCE KLEIN: Yes, that’s right. And this is larger loan sizes, bigger companies, the interest rate is good and you don’t have to pay the first year. But the banks have to take some credit risk here. They can only sell 85 to 95 percent of the loan to the federal government, so they’ll be taking on risk and they’re afraid to be getting caught in this sandwich between sort of, Main Street and Washington. And no matter what they do, let’s say they say the borrower’s not credit worthy, because we have to retain the risk, maybe somebody will say, you discriminated against this type of business.
So you know, they want to make the Main Street loans, but they’re not running to sign up because they just feel like they were caught in this gotcha game of politics, and once you were burned once, you’re a little bit scarred from signing up that quickly again. But I think ultimately clients will want these loans and they’re gonna come through.
We’ll look back on both PPP and likely Main Street lending a few years from now and say they were probably really successful. But money, the equity into small businesses in a way that was a life line to many companies – and despite the operational challenges and the non-perfection of it, a lot of good has been done here.
RODERICK CARMODY: Bruce, that’s great. Thank you so much for your perspectives and thank you for tuning in.