The U.S. Paycheck Protection Program Is a Mess.

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displayname SBA PPP name SBA PPP extractedtext SBA PPP source FACTIVA subcat gov codetype co code sba_ppp co LITHMO co|LITHMO symbol LAD country US codetype co displayname Lithia Motors Cl A extractedtext Lithia Motors source MANUAL code lad name Lithia Motors significance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/LAD fcode LITHMO status modified onlinesignificance passing-mention co GRPATM co|GRPATM symbol GPI country US codetype co displayname Group 1 Automotive extractedtext Group 1 Automotive source MANUAL code gpi name Group 1 Automotive significance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/GPI fcode GRPATM status modified onlinesignificance passing-mention co ASAUT co|ASAUT symbol ABG country US codetype co displayname Asbury Automotive Group extractedtext Asbury Automotive source MANUAL code abg name Asbury Automotive significance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol 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Here’s How We Know. U.S. Paycheck Protection Program Is a Mess. Here’s How We Know. U.S. Paycheck Protection Program Is a Mess. Here’s How We Know.

Money from the Small Business Administration for the Paycheck Protection Program isn’t going to the businesses it was intended for. The smallest operators are still struggling without any idea of when they can open their doors to the public again.

The U.S. Paycheck Protection Program Is a Mess.

Money from the Small Business Administration for the Paycheck Protection Program isn’t going to the businesses it was intended for. The smallest operators are still struggling without any idea of when they can open their doors to the public again.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp https://www.wsj.com/articles/funding-exhausted-for-350-billion-small-business-paycheck-protection-program-11587048384 https://www.wsj.com/articles/pelosi-says-we-re-close-to-deal-on-small-business-funding-11587301707?mod=hp_lead_pos1 https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/statement-secretary-steven-t-mnuchin-and-administrator-jovita-carranza-success-paycheck-protection https://www.sba.gov/sites/default/files/2018-09/2018-07-13 AFFILIATION GUIDE_Updated (1).pdf https://twitter.com/realDonaldTrump/status/1250834265471954945 https://www.sba.gov/sites/default/files/2020-04/PPP Deck copy.pdf https://asset.barrons.com/dynamic-insets/charts/cdc_1a5b84befb5993b95ecdc753.json https://www.barrons.com/articles/coronavirus-put-them-out-of-work-how-these-3-americans-are-getting-by-51586725497 https://www.barrons.com/articles/get-ready-for-mega-cash-for-clunkers-morgan-stanleys-adam-jonas-says-51587295800 https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr503.html mailto:allen.root@dowjones.com U.S. Paycheck Protection Program Is a Mess. Here’s How We Know. By Al Root

President Trump tweeted Thursday that the Small Business Administration Paycheck Protection Program was out of money. He urged Congress to top up the program, which will lend money to small businesses that, if used to pay wages, will be forgiven. A new deal may be imminent.

It took only 13 days for loan requests to top $340 billion. That’s impressive.

The problem is, a lot of the money went to larger businesses because of, in part, quirks in the way the law was written. And when large businesses—that trade on stock exchanges and have access to traditional debt and equity capital markets—use the SBA PPP, it drains resources from more needy businesses.

https://twitter.com/realDonaldTrump/status/1250834265471954945

Auto dealers, for instance, can apply for the loans. Even if they are part of large organizations such as Penske Auto Group (ticker: PAG) or Auto Nation (AN) they are eligible because the applications are done at the franchise level. Penske employs about 27,000 workers. Auto Nation has about 25,000 workers. That’s far in excess of the 500 or under worker limit intended for the program.

A Wall Street analyst as well as a lawyer working on SBA loan applications both confirmed auto dealer groups applying at the franchise level can get under the 500 employee threshold for PPP loans. Both asked not to be identified by name.

Penske and Auto Nation didn’t respond to a request for comment about the PPP program or if they have applied. According to SBA data, about $30 billion of loans, or about 9% of the SBA total, went to the retail trade. There isn’t more industry detail available.

What’s more, 44% of the SBA loans went to 4% of loan requesters. That’s about 67,000 applications taking almost half of the resources. There are about six million small businesses with less than 500 employees in the U.S.

https://asset.barrons.com/dynamic-insets/charts/cdc_1a5b84befb5993b95ecdc753.json

Erika Atkins, the Westchester-based massage therapist who spoke with Barron’s recently, applied April 4 for a PPP loan. She still hasn’t been approved.

Some of the smallest businesses are now turning to in-home service to stay afloat. One Westchester County dog groomer, who asked not to be named, tried to reopen recently only to face protests from local citizens. She started grooming one or two animals a day at home to make ends meet. She applied for a PPP loan but hasn’t heard back yet.

A New York City barber, who also asked not to be identified, isn’t going the in-home route, turning down requests for hair cuts for fear of spreading the virus. “The decision is tough, especially saying no to cash. I’m married, we have a 7-year-old and if they cut school for the rest of the year it’s gonna complicate things even more,” he tells Barron’s. He isn’t sure if his employer applied or not.

“The vast majority of these loans—74% of them—were for under $150,000, demonstrating the accessibility of this program to even the smallest of small businesses,” reads the Friday SBA press release reviewing program statistics.

That’s true, and it’s a good thing, but regulators need to pay attention to the loan size distribution too.

For the auto dealers, the access to forgivable debt might actually help the stocks. The five largest publicly traded traditional U.S. auto dealers—Auto Nation, Penske as well as Lithia Motors (LAD), Group 1 Automotive (GPI) and Asbury Automotive (ABG)—are down 38% year to date, on average, far worse than the 15% and 11% respective declines of the Dow Jones Industrial Average and S&P 500 over the same span. What’s more, the group trades for about 8 times estimated 2021 earnings.

Auto dealers have a lot of debt—to finance the cars on showroom floors—and investors aren’t sure SBA loans, as well as cash-for-clunkers programs suggested by Morgan Stanley analyst Adam Jonas, could give the sector a short term boost.

Cash-for-clunkers was a financial crisis-era program that incentivized new car purchases when trading in older models.

Write to Al Root at allen.root@dowjones.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.