CARES Act: The Good, The Bad, and The Truly Ugly

The CARES Act has been at the center of our attention for the last 3 weeks.  A well intentioned act by people in Washington to help save small business has become… well a disaster.  

Small business owners have held onto the hope their government was coming to their aid. While in actuality, history has repeated itself with major money center banks enriching themselves while businesses on Main Street USA struggle to pay their bills.  Here’s our recap of the last 3 weeks… 

The Good:

• “Washington” officially recognizes the disastrous impact COVID-19 is having on small businesses across America
• They enact the CARES Act and allocate $350B to keep small businesses afloat with 8 weeks of relief (update: round 2 will be live this Monday)
• Congress set very wide guardrails for who could receive funds and absolved the banks of responsibility for the loans they approved in order to speed up the process,  hoping major money center banks will do the right thing.
• Treasury works with the SBA and banks to facilitate getting the money to business owners quickly.  (Nice)
• The SBA process was simplified and approval instantaneous upon submission of a complete application.  (Even Better… Thanks SBA!)
• Local and Regional Banks take care of SMBs by getting money to the businesses who needed it most.  (nice job y'all!) 
• Thankfully, Congress includes a clause whereby taking the money without real need would be treated as fraud and carry the potential of a 30 year imprisonment and $1million fine.  (Let's hope they enforce this one) 

The Bad:

• Large money center banks (JP Morgan Chase and BofA in particular take advantage of the situation to line their pockets with fees while giving preferences to their top clients - Chase Representative says... "We're heartbroken about the impact of COVID-19 in our communities that we've worked really hard in a period of unprecedented economic growth to make sure that they're well positioned to share in that prosperity." REALLY).   
• Businesses who were not in dire straits saw use the opportunity to line their pockets at the tax payers expense. 
• The vast majority of small businesses who tried to apply were kept in limbo and didn’t see a dime of relief (86% still waiting for relief) 

The Truly Ugly:

• JP Morgan Chase will receive over $200 million in loan processing fees for loans already approved.  They did 27,000 loans at an average of $500,000 per loan.  Whereas the 15th leading lender did over 40,000 loans at an average of $73,000 per loan and will make a modest $30 million in fees. Does that seem right to you?  Note: SBA doesn’t release the actual names of lenders and the fees they have generated… thinking they probably should) 
• Minority, Women, and Veteran Owned businesses get less loans approved than peers.  (Seriously... it's 2020 folks let's treat everyone equally)
• Solopreneurs, Independent Contractors, and Self Employed were kept from applying until the money was almost gone. (They only represent the largest segment of small businesses)
• 45% of the Relief Funds went to 4% of the businesses who applied all of whom have over 100 employees.  (IMO these are not "small businesses") 
• The top 15 banks will pocket over $1 Billion in processing fees. (this will likely get more than just Elizabeth Warren all fired up) 
• Congress approves giving these same banks more money with the same rules in place. (#really what are you thinking) 
• It seems a little ironic states with the highest percent of businesses getting support (Montana, Wyoming, Mississippi, South Dakota, Arkansas, Nebraska, Maine, Oklahoma, Idaho, North Dakota) are the ones who are most vocal about limiting federal spending.  
• Washington DC is the worst place to be as a small business owner in terms of relief.  You have the lowest percentage of payroll covered by CARES Act. (Seems like a great time to TP the houses of the members of Congress who are not ordering takeout from local restaurants every night...oh that's right there's no TP left).

What Can We Do?: (if you agree send these to your representatives in Congress) 

• Small Business should be defined as having 100 employees or less.  (There are 15,000,000 with less than 100 employees and 100,000 businesses between 100 and 500 employees.  Shouldn't funding for small businesses actually go to small businesses?).   
• Any employee making in excess of $100,000 should not be counted at all in CARES Act relief.  (See ya later hedge funds and if you are making over $100k a year you should be able to get through this… ) 
• Banks should receive $250 per application processed. (Seriously it takes 10 minutes to process one of these loans and the SBA is taking all the risk anyway - why is Chase getting over $5,000 to process a loan with no risk) 
• Banks should be required to donate 100% of fees generated to date to non-profits supporting local communities.  (Dear Jamie and Brian - opportunity is knocking so do the right thing - hint click on their names if you want to send them an email :-) Just heard SVB Bank plans to do this... virtual high five!)
• Congress needs to hold businesses, executives at companies who fraudulently applied, along with banks who knowingly applied for clients who didn’t need the loans criminally responsible. 

What Does This All Mean to You?

• Congress approved another round of funding so if you need the money and you have not yet applied you should talk to your accountant and or legal advisor now and if appropriate get your application submitted asap.
• Checkout the SBA website to find a local bank to work with or try one of the online lenders who've been approved. (not endorsing any in particular but here are some of them: Square, Kabbage, PayPal, Intuit, and BlueVine).
• If you are a solo, indie contractor, or self employed you can access funding too!  (you are not alone!)
• This funding is going to run out too so don't wait if you need the money and meet the criteria... get in line.  

Alignable & CARES Act Funds

• When the PPP loan information first came out we evaluated the application, we talked with our accountant, investors, advisors, and others and determined.  This money was not for us.  So we decided NOT to apply and to leave the money for the people and businesses who needed it to survive this pandemic.  
• We encourage others to do the same and if you took out a loan and you didn’t need the money that you do the right thing and return it to your bank so they can get it to others in need. (You know who you are... enough said).  #SmallBusinessStrong