As Congress launched a historic bailout to keep businesses afloat at the outset of the pandemic, government officials stressed that the loans were for mom-and-pop operations that didn't have another easily available lifeline.
"This was a program designed for small businesses," then-Treasury Secretary Steven Mnuchin said, as companies like Shake Shack and Potbelly made headlines for grabbing millions from the newly created Paycheck Protection Program. "It was not a program that was designed for public companies that had liquidity."
House Minority Leader Kevin McCarthy was even clearer. "We will go after those big companies that cheat the system," he told Fox News that spring.
But the tough talk hasn't translated into action. Instead, a ProPublica review has found, the government gave out generous loans to companies that may not have needed them. And it has often forgiven the loans, despite having said that publicly traded companies would be unlikely to merit such generous treatment.
Take Lazydays Holdings, a publicly traded collection of RV dealerships that got a nearly $9 million loan. The company had $31 million in cash on hand at the end of 2019, and then prospered as Americans turned to RVs for socially distanced vacations. Lazydays' stock price has shot up more than 500% during the pandemic. (Lazydays did not respond to requests for comment.) The government has forgiven nearly all of it, allowing Lazydays to keep the money.
The ProPublica analysis of Securities and Exchange Commission filings found at least 120 publicly traded companies that received loans of more than $500,000, grew their revenues last year and have been allowed to keep the money.
In addition, at least 30 companies announced plans to go public after receiving their loans, bringing in truckloads of investor cash that they often used to pay off other debts — but not the ones they owed to the federal government, all of which were forgiven.
Overall, ProPublica found at least $250 million that went to publicly traded companies with growing revenues and that has already been forgiven by the government. That's just a sliver of the $800 billion PPP program. But it's also almost certainly a significant undercount of the amount of taxpayer dollars that went to well-heeled companies. The count, for instance, doesn't include any of the billions of dollars that went to firms backed by giant private equity funds. Their finances are not publicly disclosed.
The government had no rules requiring companies to pay back loans if it turned out they didn't need the money.
Instead, the government had one modest requirement particularly relevant to publicly traded companies: It made all applicants for loans attest that pandemic-related uncertainty made the loan "necessary." And it warned in a follow-up advisory that having access to cash elsewhere — as public companies usually do via investors — would make it difficult to take that pledge in good faith.
But the government has rarely followed up. The Small Business Administration, which oversees the PPP, discarded a questionnaire it had begun sending companies to quiz them on their financial situations.
In response to questions from ProPublica, the SBA said that it is examining all forgiveness applications to make sure they comply with the rules. "We are continuously aware of our role in the stewardship of federal funds to ensure the integrity of our programs, and we have rigorous processes in place to ensure appropriate oversight of loans of all sizes," spokesperson Christalyn Solomon said.
But the SBA declined to provide evidence of how it is evaluating whether public applicants were honest when they said their loans were "necessary." Experts say that's because lawmakers offered no specifics on what they meant by "necessary" from the outset, leaving the program's administrators with no objective basis on which to demand repayment.
"Congress needed to say to the SBA, 'This is what constitutes need,'" said Liz Hempowicz, director of public policy at the nonprofit Project on Government Oversight. "If you have access to excess capital in any form, that absolutely should've been baked into the program from the beginning."
By many metrics, the federal government's response to the pandemic succeeded in alleviating the worst effects of the most abrupt pause in economic activity America has ever experienced. Unlike most safety net programs, it did so by erring on the side of generosity. The government's supplemental unemployment insurance and stimulus checks were enough to actually lower poverty last year.
The same philosophy applied to relief for businesses. The government kept the PPP application simple to encourage companies to participate, and banks were paid to move the loans along without asking many questions. While the program was built on the chassis of the SBA's standard loan program, it dispensed with many of its rules, such as a requirement that applicants demonstrate they couldn't obtain reasonably priced credit elsewhere.
In the first round of the bailout, which was quickly depleted, companies did not have to prove that they had actually been impacted by COVID-19.
Instead, the application required them to certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant." Facing confusion from corporate lawyers who said the language was vague, the SBA released further guidance in late April 2020.
The clarification specifically warned public companies that they probably wouldn't meet the threshold. "Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity," the agency wrote. "It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith."
That admonition had some effect. According to a study forthcoming in the Review of Corporate Finance Studies, half of all public companies qualified for the loans, but only 42% of those eligible chose to take them. That compared to 87% of all eligible private companies. (The PPP generally excluded companies with more than 500 employees.) On average, the 812 public firms that took loans had less cash and more debt than those that didn't borrow. The public companies collectively borrowed $2.2 billion, but 13.5% of them repaid their loans, mostly soon after the SBA's April guidance.
But because Congress didn't impose any actual requirements to return the money, many companies didn't. Some even shrugged off congressional pressure to do so.
In May 2020, a House oversight subcommittee sent letters asking five large public companies to return their $10 million loans. One of them did. The other four refused, and they eventually all received forgiveness (with one asking for slightly less than the whole amount).
They included a contractor for the U.S. Postal Service called EVO Transportation and Energy Services, which hasn't filed financial reports for all of 2020 after discovering problems with its 2019 disclosures.
The company didn't respond to a request for comment.
The SBA began processing forgiveness applications after the first round of PPP loans was exhausted in August 2020. It decided that all borrowers of less than $2 million would automatically be "deemed" truthful in their pledges that their loans were necessary.
For those who borrowed more, it issued a nine-page "loan necessity questionnaire" that asked about the recipient's ownership structure, cash on hand pre-pandemic, revenues during the time when the loan was supposed to be used and access to other capital.
That didn't go over well.
Last December, a construction industry trade group sued, saying the SBA questionnaire violated the original guidance that implied forgiveness would be determined by what companies knew at the time they applied, without regard to what happened later. In July, the agency stopped using the questionnaire, saying that the form was burdensome for borrowers and a drain on auditing resources.
Without companies' answers, the SBA has developed a machine-learning algorithm that flags loans for signs of potential fraud, such as payroll numbers that don't add up. As of last month, agency data showed, investigators had reviewed 65,000 loans, 8,000 of which, totaling $2.7 billion, were referred for further analysis. Of those, only 300 loans were for more than $2 million.
The agency declined to say how many forgiveness applications have been rejected after going through this process, or how, without using the discontinued questionnaire, it has evaluated whether the loans were necessary.
The Securities and Exchange Commission also issued inquiries to some companies about their representations to investors, but a spokesperson declined to say whether any enforcement actions had been taken as a result.
A former finance manager at one company that received millions in PPP money and hasn't paid it back said that he'd hoped the government would more closely examine his employer's finances.
"I remember that questionnaire coming out, and we were thinking, 'This might not get forgiven,' because our cash position was a lot better at the end of the year," the employee said. Since the questionnaire has been thrown out, he figures, companies that didn't need the cash will end up keeping it. "The only reason to give it back is public sentiment. At that point, it's free money."
Waste is inevitable in any economic rescue mission. But some of it is avoidable. Experts say Congress could have created a threshold of financial health at which PPP loans would have to be repaid — without denying the lifeline many firms needed.
"We're talking about a ridiculously low interest rate," Hempowicz said. "There is a benefit either way, especially for bigger companies, to have received these loans, even if they aren't then converted into grants."
All PPP loans were forgivable if the cash was mostly spent on payroll. If a company was still seeing steady business, it could use that freed-up income for other priorities, like paying off debt and buying other companies.
That's the happy outcome for many companies that performed well in 2020, often profiting from the very pandemic that they said put them in the position of needing a taxpayer bailout.
A chain of powersports dealers called RideNow collectively received $19 million, despite nearly tripling its net income from 2019 to 2020 as interest in motorbikes and all-terrain vehicles skyrocketed. In March 2021, the publicly traded online motorcycle sales platform RumbleOn announced it would acquire RideNow to create what it called the "only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform." RideNow's loans were fully forgiven in June, and RumbleOn's forgiveness application for its original $5.1 million loan is pending.
Other examples abound. Acme United Corporation saw its sales increase 15% in 2020 because of strong demand for first-aid supplies. Its $3.5 million loan was fully forgiven. So was the $2.7 million borrowed by Conifer Holdings, an insurance company that attributed revenue growth to lower claims by businesses that were temporarily shuttered but maintained their policies — which explicitly did not cover business interruption due to infectious diseases. And the ammunition manufacturer Ammo Inc. kept $1 million after seeing its revenues triple to $62.5 million in 2020, fueled by increased consumer demand for bullets. None of those companies returned requests for comment.
Public companies aren't the only borrowers that took more than they likely needed. Securities and Exchange Commission filings are also a window into privately held companies that have raised money in the public markets or later listed themselves on an exchange.
The venture-capital-backed person-to-person lending marketplace Prosper files earnings statements because it sells its loans to investors. The company had $64 million in unrestricted cash on hand at the end of 2019, but it still suspended its 401(k) match and cut salaries above $100,000 across the board in early 2020 — a collective reduction in compensation almost equal to the $8.4 million PPP loan it received. The pay cut also applied to the C-suite, but they had already received up to 10% base salary bumps in March 2020, so it hurt less.
In November, the company instituted a retroactive two-year bonus plan for executives — potentially totaling $3 million for five people.
Prosper did not respond to a request for comment, and its forgiveness request is still pending.
Some companies did pay the money back. At least 27 companies decided to do so while in the process of going public, since the sale of stock often generates large amounts of cash.
Luminar Technologies, an autonomous driving technology startup, gave back its $7.8 million before its Nasdaq debut.
"We decided to return the PPP loan as soon as we realized we didn't need it anymore," said Anthony Cooke, Luminar's vice president for policy and regulation. "We decided to apply for a PPP loan because it gave us the flexibility to withstand uncertain times while protecting our employees. We were able to protect employees, grow our business and take it public in 2020, and we repaid our PPP loan as soon as it was feasible."
Other companies kept the taxpayer money, even while paying off other debts.
That's what another company in the autonomous driving business did. A Ford-backed designer of sensors called Velodyne Lidar got $10 million in government money, which a spokesperson said was "used to support our employees during a time of uncertainty."
The company went public in September of last year, giving it $222 million in cash. The government forgave Velodyne's loan this June.
Battery-powered bus maker Proterra got $10 million. Its revenues increased last year, and it went public this year. The company decided to keep the money, which spokesperson Shane Levy said "supported our ability to maintain a full workforce as we've navigated the uncertainty caused by the COVID-19 pandemic." A Volkswagen- and UPS-backed self-driving truck company called TuSimple kept its $4.1 million after going public in a deal that generated about $1 billion; a spokesperson didn't respond to a request for comment.
Several companies hadn't yet had any income at all — they had been funded by investors through their entire existence, suggesting that they probably had access to other credit.
A pre-revenue electric vehicle maker called Faraday Future got $9.2 million. This past July, it launched a public offering that generated $1 billion; its loan forgiveness request is still pending. A spokesperson told ProPublica that the investor proceeds will be "budgeted to produce vehicles," not to pay back taxpayers. Space launch services company Astra took $4.9 million in government money. As it applied for forgiveness in June, it told investors that COVID-19 "has not materially affected our future growth outlook" and that it had seen "some signs of positive effects for its long-term business prospects and partnerships as a result of the pandemic." Astra's Nasdaq debut in July generated $463 million, and its PPP loan was forgiven last month. A spokesperson didn't respond to a request for comment.
Another category of large PPP recipients consisted of clinical and early commercial-stage medical device and pharmaceutical companies, which are heavily investor-backed and which sometimes profited from COVID-related activity. A biotech company called PolarityTE, which makes regenerative tissue products, cut staff by 47% in 2020 and raised revenues by 79% by serving as a COVID-19 testing lab. It received $3.6 million, which was forgiven; the company didn't respond to a request for comment.
Anything having to do with residential real estate also did well.
Fast-growing homebuilder Dream Finders Homes saw 52% earnings growth in 2020, which it attributed in part to pandemic-induced migration to suburban developments. It went public in January 2021, generating $134 million, and was granted full forgiveness on its $7.2 million loan. The company didn't respond to a request for comment.
The home improvement services platform Porch told investors that spiking home sales in late 2020 helped it rebound from a spring business dip. It applied for forgiveness for its $8.1 million PPP loan in December, the same month it debuted on Nasdaq. With $122 million of the proceeds from its IPO, it bought four other companies; it hasn't paid back the PPP loan, which was forgiven in June. A spokesperson declined to comment.
Finally, the type of companies that arranged the capital for all these public offerings and funding rounds — investment advisory firms — also dipped into the PPP.
Cohen & Company, a financial services firm with $2.8 billion under management, got $2.2 million. The firm saw dramatically higher income last year. Nearly all of its loan was forgiven. Another asset manager and investment banking firm, JMP Group, had $3.8 million forgiven despite having $50 million in cash at the end of 2019 and 15% revenue growth in 2020. Neither firm responded to a request for comment.
Some investment advisory firms may have used inflated claims. One study found that at least 6% of the $590 million granted to those firms was more than they could have justified given their payroll, which has to be reported to the SEC.
Writing laws is often a balancing act. One approach draws bright lines that lay out exactly what's required, which companies often figure out a way to game. The other leaves rules more vague, relying on the regulated party to abide by the program's intent. That eases the process for beneficiaries who really need help, but runs the risk the others will also benefit.
The PPP leaned toward the latter approach. It told companies that they probably shouldn't apply if they had other resources at their disposal, but gave them a window to do so if they wanted. In order to make that work, there would need to be a credible threat of enforcement, or at least public shaming if they took advantage of funds meant for the truly disadvantaged.
Erik Gordon, a professor at the University of Michigan's Ross School of Business, said the SBA should have held public companies to a higher standard of need and then audited them to ensure they'd been truthful.
"If I ran the SBA, I would say, 'You certified that this loan request was necessary — walk us through that. You had this much cash, or you had this much loan facility open or you had no trouble raising this money,'" Gordon said.
Of course, if you don't want public companies to apply, you could just bar them from applying. That's what Congress did when it created a second round of the PPP in December 2020. That time around, companies were also required to demonstrate that their revenues had declined substantially in at least one quarter in order to qualify.
Sam Rosen, a finance professor at Temple University who co-authored the study on public firm participation in the PPP, said it isn't that complicated. "If we were in a similar situation in the future, do we want public firms to have access to this?" he said. "I think it's just about being clear up front."