‘Far from clear.’ How pandemic-relief loans were restricted, and why all the confusion
Chaos and confusion.
Those descriptions are found in early news reports about the $953 billion Paycheck Protection Program the federal government put into place to help small businesses stay afloat during the early months of the COVID-19 pandemic.
At the time, government and health officials were ordering people to stay home and businesses to close as the deadly virus tore through the United States. As people tried to stock their homes with necessary items, supply chain issues immediately followed.
Congress signed off on a low-interest and often forgivable loan that offered around 2.5 times the amount of an applicant’s payroll. But businesses were told they needed to apply quickly before the money dried up.
Complicating matters was that people needed to quickly interpret rules, court orders and guidance over who could and couldn’t apply in the early days.
But under the rules, those “primarily” engaged in lobbying or political activities were excluded from the loan program, absent a few small carve-outs.
Savannah Wilburn, spokeswoman for the Small Business Administration, confirmed that exclusion in an email to McClatchy.
“Further, the legislation provided that none of the proceeds of a PPP loan may be used for lobbying activities…lobbying expenditures related to a state or local election; or expenditures designed to influence the enactment of legislation, appropriations, regulations, administrative action, or executive order proposed or pending before Congress or any state government, state legislature, or local legislature or legislative body,” Wilburn wrote.
Typically, the SBA considers a business primarily engaged in political activities or lobbying if it derives more than 50% of its gross annual income from that type of work.
Fighting for the loan
Once Congress authorized the SBA to provide PPP loans, the American Association of Political Consultants sued in federal court to allow both lobbyists and political consultants to apply.
But the courts sided with the SBA.
Meanwhile, both members of Congress and the media criticized the program with claims that the SBA didn’t monitor against fraud or help direct money to businesses that truly needed it. Countless articles were written about various political consultants, lobbyists, celebrities and politicians who took out the loans, some seemingly in conflict with the program’s intent to help small businesses.
And it took petitions from the media for the SBA to even reveal which companies received the loans.
Wilburn did not directly respond to a question from McClatchy about whether there were checks and balances in place to prevent fraud. The federal government has created a task force to investigate possible fraud involving COVID-19 loans and has charged more than 500 people. The SBA said a 1996 mandate prevented it from giving money to those primarily focused on lobbying and political activities.
The agency argued in defending against the lawsuit that using federal tax dollars in such a manner would not be cost-effective or appropriate. Attorney Jason Torchinsky represented political consultants and lobbyists in their lawsuit. He said that the SBA’s policies left a lot of room for interpretation.
“The Small Business Administration’s restriction here is far from clear,” Torchinsky said, “and they’ve done nothing in the past couple of years to provide any clarity.”
After the lawsuit, the application for the PPP loan was updated on March 18, 2021, to include a checkbox an applicant must fill out that states: “The Applicant is not a business concern or entity primarily engaged in political or lobbying activities, including any entity that is organized for research or for engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public documents.”
This story was originally published August 31, 2023 at 5:50 AM with the headline "‘Far from clear.’ How pandemic-relief loans were restricted, and why all the confusion."