The Paycheck Protection Program Taught Marco Rubio a Very Important Lesson

The Paycheck Protection Program (PPP) provided more more than $800 billion in forgivable loans from more than 5,500 lenders to more than 11.8 million small businesses across the country. He was tasked with providing much-needed funding at a crucial time that has helped these businesses stay open and keep their workers employed during an unprecedented global pandemic.

That’s largely thanks to Sen. Marco Rubio (R-Fla).

“It was not only the most impactful legislation I have ever passed, but I believe it is the most impactful legislation Congress has undertaken in a quarter century or more,” Rubio told me in a recent conversation podcast. “It’s probably one of the few, rare times we’ve been able to do something and do it quickly that actually had an immediate impact on real people and immediately changed their lives.”

The program became law as part of the March 2020 CARES Act. But it wasn’t created just for the pandemic. In fact, a bipartisan group of senators led by Rubio was discussing a version of PPP months before, primarily as a potential financing vehicle for small businesses facing supply chain issues (yes, there were supply chain issues before COVID-19). The pandemic accelerated its progress and made this unique funding vehicle law.

Of course, the PPP has not been without its challenges.

Early in its launch, most major banks were slow to move forward with desperately needed funding, slow enough to elicit more than a few frustrated comments and tweets from Rubio initially.

“Some banks weren’t interested in this beyond their commercial customers, even their business accounts,” he said. “They acted like the money was their money, they were at risk, there was no risk to the bank, the bank was just a pass.”

Eventually, these large financial institutions came into being. But for a while it was a struggle. The good news, according to the senator, is that many regional and independent banks have been quicker to respond. “Some of them have been very proactive in their marketing,” he said. “In some ways, they ended up attracting a group of new account holders who haven’t forgotten how great these regional banks were there when needed. “

Then, of course, there was the fraud. A lot.

The media has reported numerous cases in which shady business owners have used PPP funds for illegal purposes, including the purchase of boats, cars and houses. A government watchdog recently estimated that as many as 57,500 PPP loans worth $3.6 billion were issued to potentially ineligible recipients. And that’s not even taking into account the many loans that were legally received, but by celebrity-owned businesses, investment firms, and other wealthy shareholders who had dubious claims of “need.” But did these allegations of fraud come as a surprise to the senator? Not really.

“Medicaid is full of fraud,” he says. “There’s also credit card fraud, is anyone talking about getting rid of their credit card?” he says.

According to Rubio, the way you deal with fraud is to build some things in the beginning to make it more difficult, but also to chase it backwards. As larger loans are audited, an increasing number of fraudulent loans are discovered and processed. “I think it’s starting to happen, and people should go to jail and pay restitution for what they stole,” he says.

So if it wasn’t the reluctance of the banks or the large number of reported frauds, is there anything the senator learned in creating and implementing this unprecedented government stimulus program in such a short time of time?

In fact, Rubio was surprised by one big thing: many small businesses that needed help could only get that help through a bank or lender, and he soon learned that many of those business owners weren’t properly set up as businesses — at least from a banking perspective.

“Food trucks (for example) in some places don’t have company accounts,” he said. “There are many companies that actually don’t have corporate banking relationships.”

This came as a surprise to Rubio and others involved in developing the PPP. But when you think about it, maybe it shouldn’t have been such a shock.

According to a 2019 FDIC investigation, an estimated 5.4% of U.S. households (about 7.1 million) were “unbanked” in 2019, meaning no one in the household had a checking or savings account at a bank or cooperative credit. Another study conducted by a research firm Morning consultation found that 25% of Americans are either unbanked or “underbanked,” meaning there is only a personal checking account in the family and even then, alternative financial services companies for money orders or check cashing services were mainly used.

Of the 30 million small businesses in this country, around 6 million are employer-owned, meaning more than two-thirds are independent contractors, freelancers or sole proprietors – all eligible for PPP funds. But, unfortunately, many of these business owners were unable to access funds because they were unbanked or underbanked.

Then there are minority considerations. According to Morning Consult analysis, 30% of banked or unbanked people are black and 41% are Latino. Florida, Rubio’s home state, is home for 5.3 million Latinos, or 8% of the Latin American population. There are more … than 604,000 Hispanic-owned businesses in Florida, not including countless other freelancers and freelancers. So he missed this one.

One thing is certain: for the next iteration of the PPP, which has proven to be a model for future public/private financing initiatives, it is likely that Rubio, or whoever is involved, will consider companies that do not have banking relationships. But let’s not entirely blame the senator for this oversight. It is also the business owner’s responsibility to stay informed and involved.

Gene Marks is the founder of The Marks Group, a small business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.

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