Distribute PPP Funding Fairly. Adopt 10-to-1 Rule.

The SBA announced that funding has dried up for the popular Paycheck Protection Program. Over $1.6 billion worth of loans were processed, eating up the $350 billion appropriation in less than two weeks. Many have read stories about large companies getting to the front of the line.

They’re right. Big companies with relationships at big banks received loans up to $20 million in as little as four days while the rest of us waited for banks to open online application portals. Take a look at slide 4 of the SBA’s PPP Report issued on 4/13/2020:

About 15% of all companies that applied for a PPP loan had loan sizes over $350,000 and received 71% of the funding. They had the means, and most importantly the access, to get these loans while the rest of us could not. They also have more sophisticated capital structures which gives them much more staying power than smaller companies.

Congress is now negotiating additional PPP funding. They expect to pass a bill this week (4/20/2020). Below I have listed ways you can contact your US Senator, US Representative or the SBA to request they adopt the 10-to-1 Rule.

The 10-to-1 Rule

The 10-to-1 Rule: for each PPP loan over $350,000 that is approved and funded, 10 loans under that amount must be approved and funded before the next $350,000 loan is made.

I suggest that for every loan over $350,000 SBA approves they must also approve 10 loans under $350,000. I would require that banks certify that they have disbursed funding the 10 smaller loans before the next $350,000+ disbursement. We don’t want the banks holding onto our approvals while they fund larger loan customers. I’d make this retroactive to the $350,000+ loans already made so the next big batch of loans processed go to smaller businesses.

Congress can write this into law or the SBA could adopt by rule. It’s a simple, measurable way to help small businesses who need it most right now.

Why 10-to-1? Why $350,000?

In a prior blog post I estimated that 21 million companies and independent contractors would be eligible for the PPP program. Over 99% of them would need loans well below $350,000. Looking at the data from this round, there was 881,648 loans made under $350,000 and 153,438 above it, creating a ratio of 5.75 which I rounded up to 10. The average loan size was over $1.1 million.

At some point, larger loans applications be completed and new loan volume will be less than $350K. Which is why I want the rule to be applied retroactively… the SBA and banks would process about 1.5 million smaller loans before processing the next larger ones.

What You Can Do

Tell US Senators and Representatives about the 10-to-1 Rule

If you think this idea is worthy of Congressional consideration – let them know! I’ve listed some of the key players and contact information below. You can also use this tool to look up your local officials. I’ve written some sample tweets and messages you can cut and paste. I also created a change.org petition you can sign.

Please share this post and help influence this important legislation!

Sample Twitter Message

Hey @____ level the playing field for small businesses! Adopt the 10-to-1 rule for the next round of Paycheck Protection Program financing. #PPPFundingFairness

Sample Contact Form Message

Please level the playing field for small businesses in the next round of funding for the Paycheck Protection Program. Require the SBA and banks to adopt the 10-to-1 rule: for each loan over $350,000 that is approved and funded there must be at least 10 loans of a lower amount also approved and funded. Make it retroactive to the loans already made. This will help small businesses who were overshadowed by larger firms who took up 70% of the initial $350 billion program authorization.

Key senators on the U.S. Senate Subcommittee on Small Business and Entrepreneurship:

Sen. Marco Rubio (R-FL) Website: https://www.rubio.senate.gov/public/

Sen. Ben Cardin (D-MD)

Sen. Susan Collins (R-ME)

Sen. Jeanne Shaheen (D-NH)

Small Business Administration Leadership

Jovita Carranza, SBA Administrator

Congressional Leadership

These are people responsible for bringing legislation to the floor.

Rep. Nancy Pelosi, (D-CA), Speaker of the House of Representatives

Rep. Kevin McCarthy, (R-CA), House Minority Leader

Sen. Charles Schumer (D-NY), Senate Minority Leader

Sen. Mitch McConnell (R-KY), Senate Majority Leader