Lack of bailout guardrails creates vicious cycle

Ruth's Hospitality

04/05/2020 20:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Gina Chon
    SAN FRANCISCO, May 4 (Reuters Breakingviews) - U.S.
politicians bashed big firms like Ruth’s Hospitality  RUTH.O 
and Shake Shack  SHAK.N  for getting aid in the previous
small-business bailout. But those restaurant chains, and others
like basketball team the Los Angeles Lakers, were just
capitalizing on loopholes. The latest $310 billion loan package
still allows for abuse, and much of it is already doled out.
Until the problems are fixed, more bailouts will be required.
    Many of the 30 million U.S. small businesses missed out on
the first $350 billion in aid earlier this month. And they could
get sidestepped again. About $175 billion of the $310 billion in
the second installment of the Small Business Administration’s
Paycheck Protection Program, which are forgivable if a bulk of
it is used for payroll, was handed out last week for ventures
with up to 500 employees. The first tranche lasted 13 days.
    Policymakers want to avoid earlier backlash. Several large,
publicly traded organizations have returned aid after an outcry.
Treasury Secretary Steven Mnuchin has warned of penalties for
undeserving firms that accept funding. 
    The design of the bailout is the main problem. Lawmakers
specifically made an exception to allow firms like Ruth’s Chris
to get help, suspending affiliation rules for hotels and
restaurants so that chains and franchises would be eligible. It
also shelved requirements that a business prove it couldn’t get
credit elsewhere. 
    Reinstating those criteria, along with reducing the maximum
$10 million loan amount, would help. Current rules still give
eligibility to a firm with an average monthly payroll expense of
up to $4 million; a small business with 50 employees incurs
average monthly salary costs of $225,000. Changing the loan
limit to $1 million would stretch the program farther.
    Getting cash to the unemployed should be a top priority.
The Federal Reserve on Thursday expanded its new Main Street
lending program to firms with up to 15,000 employees. Congress
temporarily boosted weekly unemployment payouts by $600 a week.
    But people are struggling to get aid, with infrastructure to
receive unemployment assistance jammed. Without stricter
oversight and guidelines, those who most need cash still won’t
receive it. Unless lawmakers want to keep forcing the federal
government to write checks, they need to take a sharper pen
to bailout rules.
    On Twitter https://twitter.com/GinaChon
         
    CONTEXT NEWS 
    - About $175 billion of the $310 billion second installment
of the Small Business Administration’s Paycheck Protection
Program has been dole out, U.S. Treasury Secretary Steven
Mnuchin told Fox Business on May 4.
    - The additional funding, which was made available starting
April 27, included $30 billion set aside for banks with assets
under $10 billion and another $30 billion for banks between $10
billion and $50 billion in assets.
    - The SBA has also warned that public companies will likely
not qualify and those that took aid from the initial $350
billion in funding have until May 10 to pay the money back
without incurring penalties.
    - For previous columns by the author, Reuters customers can
click on  CHON/ 
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 (Editing by Lauren Silva Laughlin and Amanda Gomez)
 ((gina.chon@thomsonreuters.com; Reuters Messaging:
gina.chon.thomsonreuters.com@reuters.net))