BOULDER, Colo.–One small business owner who was recently awarded funds as part of the Paycheck Protection Program is calling the loans “legalized fraud.”
In an op-ed published in the Wall Street Journal, Pete Vegas owner of Sage V foods in Boulder, Colo., said his food-manufacturing business with more than 200 employees was recently awarded a $3.4-million loan through the $349-billion Small Business Administration program, which recently ran out of funds and is awaiting new funding from Congress.
“From what I’ve observed, the Paycheck Protection Program is completely flawed and will function as a handout to companies that don’t need it. Billions of misspent dollars will never be paid back,” wrote Vegas.
With his own business a supplier to grocery stores, Vegas said Sage V hasn’t been negatively affected by the coronavirus pandemic and has been able to keep its workforce intact while working to protect employees.
“In the PPP application, only one line pertains to the effects of COVID-19,” wrote Vegas. “In signing the application, I agreed to the statement: ‘Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ We’re incurring additional expenses to protect against a potential shutdown, but for the moment my business is in a strong financial position.”
‘Agonized Over Decision’
Pointing to the closure of meat processing facilities, Vegas said he knows his own plant in Little Rock, Ark., might be next, and that counts as “economic uncertainty.”
“I agonized over the decision to apply for the loan, but ultimately accepted it, placing it in a separate account. We have every intention of repaying it in full,” wrote Vegas. “But if in 60 days I maintain my current payroll, then the loan can be forgiven. I assume the loan was intended to help companies that are currently shut down or severely suffering remain in business and keep their employees on the payroll. But the program doesn’t differentiate between companies that are completely shut down and those operating at 50% or 100% capacity.
“That means profitable companies like mine, which may weather this storm regardless of the stimulus, have no incentive or obligation to pay back the money,” Vegas continued. “No wording in the application explicitly prohibits such behavior. This program creates—even encourages—conduct that would normally be considered fraud. Once government officials figure this out, they might spend years tracking down fraudulent uses of the funds (provided the loan agreement’s loose wording doesn’t make fraud impossible to prove).”
A ‘National Scandal’
Vegas notes the SBA has “passed responsibility” for disbursing PPP loans to financial institutions, which he said have every incentive to “protect themselves.”
“Given the time crunch to award loans, banks were forced to focus on larger existing clients, not the smaller companies that need the money most,” said Vegas. “PPP loans are shaping up to be a national scandal, in more ways than one.”