A Mississippi man was arrested on Thursday, accused of spending COVID-19 small business loans on a variety of luxury items, including a $100,000 Tesla and a $1 million home, federal prosecutors said.
Christopher Paul Lick, of Starkville, got $6 million in Paycheck Protection Program (PPP) funds by filing false and fraudulent loan applications with banks, according to court documents cited in a news release by the US Attorney’s Office of Northern Mississippi on Friday.
Lick lied about the number of people his businesses employed, and his expenses, the documents said.
As well as the Tesla and million-dollar home, Lick invested some of the money in the stock market, the documents said.
He had been indicted by a federal grand jury before his arrest, the Department of Justice (DoJ) said.
The 45-year-old is charged with four counts of wire fraud, one count of false statements to a financial institution, and eleven counts of money laundering, according to the DoJ. He faces up to 30 years in federal prison if he’s convicted.
On Saturday, Lick pleaded not guilty to the 16 counts.
PPP loans were designed to help small businesses pay their staff, rent, and mortgage costs to help keep them afloat during the pandemic. Insider previously reported that the majority of borrowers can receive up to 2.5 times their average monthly payroll costs, but that loans can’t exceed $2 million.
The White House initially launched the program in April 2020, but the $349 billion funding ran out in two weeks. Congress approved another $320 billion in May, and the program stopped in August with around $130 billion in unused funds.
Small businesses have been hit hard financially by COVID-19, and government aid from President Joe Biden’s $1.9 trillion stimulus package, along with regular, non-emergency financing from banks, has helped those businesses stay afloat.
But access to funding – or lack thereof – still often breaks down along racial lines, according to a new survey conducted by 12 Federal Reserve Banks.
The survey, conducted in September and October 2020, yielded 9,693 responses from a small businesses with between one to 499 employees, and another 4,531 responses from non-employer firms, with responses corresponding to the prior 12 months. It found that aid from banks, along with Paycheck Protection Program (PPP) funding, has disproportionately gone to white-owned businesses, and firms owned by people of color have in many cases gone without the help they need.
According to the credit survey released on Thursday, white-owned small businesses were twice as likely to be fully approved for financing as Black- and Latino-owned businesses last year. Among Latino-owned firms with low-credit risk, 25% received requested non-emergency financing, while 48% of white-owned firms received all requested financing. The survey also found that Black- and Latino-owned business with low credit risk were approved for full financing at nearly the same rate as white-owned businesses with medium to high credit risk.
Here are the other key findings of the survey:
Businesses owned by people of color were more likely than white-owned businesses to report reduced operations or temporary closure during the pandemic;
13% of Black-owned firms received all the financing they sought during the pandemic, compared to the 40% of white-owned firms;
46% of Black-owned firms that applied for financing received nothing;
And among non-employer firms, those with white owners were twice as likely as those with Black owners to receive all the PPP funding they sought.
Insider reported on March 16 that the PPP has factored into small businesses maintaining strong credit standings due to aid provided since the start of the pandemic, but experts said the government needs to provide more targeted aid beyond the pandemic to ensure equitable distribution.
“Let’s find those businesses that really need the help,” Brett Theodos, a senior fellow at the Urban Institute, told Insider last month. “Let’s support entrepreneurial ecosystems where they’re not well developed, let’s help de-risk loans that really are high risk, let’s overcome the race equity gap that exists and business ownership in this country, and let’s be more intentional around our targeting.”
On March 30, Biden signed the PPP extension into law, which allows small businesses to receive aid from the program through May 31, and he also included $50 billion in small business aid in his $1.9 trillion stimulus package.
But since the program was established under the CARES Act in March, it has run into a host of problems that prohibited eligible businesses from receiving aid. For example, although loans within the program are intended for businesses with 500 or fewer employees, some large companies got them, such as fast-food chain Shake Shack getting $10 million, which it later returned.
And Brookings data from last year found that businesses in communities of color were least likely to have existing relationships with large banks, causing an average 31-day delay for small businesses in majority-Black zip codes to receive their PPP loans.
One day before it was set to expire, on Tuesday President Joe Biden signed the Paycheck Protection Program (PPP) extension into law, extending federal aid for small businesses through May 31.
Five days ago, the Senate sent the PPP Extension Act to Biden’s desk, which extends the small-business lending program by two months and permits the Small Business Administration to continue processing loan applications through the end of June. In both the House and the Senate, the bill passed with overwhelming bipartisan support, and Biden declared the law a “bipartisan accomplishment.”
“Without signing this bill today, there are hundreds of thousands of people who would lose their jobs, and small family businesses that might close forever,” Biden said before signing the bill.
Lawmakers lauded the passage of the PPP extension, given that many small business are still suffering financial hits brought on by the pandemic. That’s why Biden included $50 billion in small business aid in his stimulus plan, including $7.25 billion specifically for the PPP.
According to recent SBA data, the PPP has given out 8.2 million small-business loans thus far, totaling $718 billion, helping many small businesses continue paying their bills throughout the pandemic.
Since it was established under the CARES Act in March, though, the PPP’s loan disbursement has come in for criticism. For example, although loans within the program are intended for businesses with 500 or fewer employees, some large companies got them, such as fast-food chain Shake Shack getting $10 million, which it later returned.
Separately, the Office of the Inspector General found the PPP had distributed duplicate loans to over 4,000 borrowers due to problems in the SBA’s controls, which would have to be paid back.
Both Democratic and Republican lawmakers have said the benefits of the PPP outweigh its detriments and are needed to provide pandemic relief to small businesses across the country.
“These loans have saved small businesses throughout our nation,” Sen. Ben Cardin of Maryland said on the Senate floor last week. “They would not be here today but for this program.”
To continue providing aid to small businesses recovering from the pandemic, the House voted on Tuesday to extend the Paycheck Protection Program (PPP) by two months, ahead of its expiration on March 31.
The bill to extend the PPP had been introduced on March 11 by Small Business Committee Chair Nydia Velàzquez, Ranking Member Blaine Luetkemeyer, Rep. Carolyn Bourdeaux of Georgia, and Rep. Young Kim of California. Less than a week later, the House overwhelmingly voted by 415-3 to extend the program through May 31 to avoid a lapse of aid.
The program has provided small businesses with $700 billion of emergency loans to date, according to a press release.
“Based on recent economic data and the demand for PPP loans, it’s clear that small businesses still need support. We are making progress in our public health fight against this virus, but this pandemic continues to impact communities across the country, and we can’t let up on our efforts,” Velázquez said in a statement. “By providing small businesses with two more months to apply and giving the SBA [Small Business Administration] an additional month to process applications, we will help ensure critical support isn’t cut off.”
Under the bill, the SBA has until June 30 – a month after the PPP ends – to continue processing loan applications, giving small businesses the chance to continue receiving aid after the Program expires.
Since it was first established under the CARES Act in March, the PPP has encountered a host of issues with loan distribution. For example, although loans within the program are intended for businesses with 500 or fewer employees, the fast-food chain Shake Shack received a $10 million loan, which it later returned.
And recently, the Office of the Inspector General found that the PPP distributed more than one loan to over 4,000 borrowers due to flaws in the SBA’s controls.
However, despite the flaws, small businesses have not yet recovered from financial hits the pandemic brought on, emphasizing the need for a PPP extension. In President Joe Biden’s American Rescue Plan he signed on March 11, $50 billion was set aside for small businesses, including $7.25 billion specifically for the PPP.
The bill now heads to the Senate, where it may be passed before members leave Washington in mid-April.
“As America begins to open up for business and vaccines become more widely distributed across the country, we must provide targeted relief for small businesses that need it most,” Luetkemeyer said in a statement. “This bipartisan legislation provides a commonsense extension to the Paycheck Protection Program and the tools for Main Street USA to contribute to their local economies once again.”
The Paycheck Protection Program was established under the CARES Act to provide aid to small businesses suffering during the pandemic. But it provided too much aid, it turns out.
But the Office of the Inspector General (OIG) found that the Small Business Administration’s program has a major flaw: duplicate loans.
A report released on Monday by the Office of the Inspector General (OIG), a government watchdog, found that of the PPP loans approved between April 3 and August 19, 2020, lenders made more than one loan disbursement to 4,260 borrowers, including 2,689 borrowers with the same tax identification number and 1,571 borrowers with the same name and business address. Those potential duplicate disbursements totaled about $692 million and involved 8,731 PPP loans.
The SBA responded to the findings in the report by saying it will resolve duplications by recovering improper payments and and preventing loan forgiveness on the duplicate loans. That means small businesses will have to give back the duplicate loans, if they can.
According to the report, the SBA identified issues in 2020 that had caused duplicate loan applications to be processed. The SBA had turned off controls for its electronic loan application system, leading to duplication, even though the office had said it would rely on loan reviews to eliminate the issue. The report looked at the PPP’s first round in August 2020.
“Establishing strong controls to prevent improper or duplicate disbursements from occurring during initial loan processing is more effective than attempting to identify and resolve improper disbursements in the loan review phase,” the report said. “SBA’s efforts should focus on safeguarding funds up front, as it is more prudent and effective to prevent a loan from occurring than attempting to recover funds after the loan has been disbursed.”
The OIG recommended that the SBA:
Review potential duplicate loans and take action to recover any improper payments;
Review controls related to all PPP loans to ensure duplicate loans are not forgiven;
Strengthen the SBA’s loan servicing portal controls for future PPP-type programs;
And strengthen controls and guidance for lenders to ensure lenders meet program requirements.
The House Select Subcommittee on the Coronavirus Crisis had requested that the OIG conduct the report to review the vulnerabilities in the SBA’s loan processing system.
Along with the duplicate loans, the PPP faced issues shortly after it was implemented in March, famously including fast-food chain Shake Shack receiving a $10 million loan it ultimately gave back, despite the loans being intended for businesses with 500 employees or fewer.
However, lawmakers have advocated for the PPP and its importance in helping small businesses recover financially from the pandemic. In the $1.9 stimulus plan President Joe Biden signed on Thursday, $50 billion was set aside for small businesses, with $7.25 billion to be used specifically for the PPP.
And the House Small Business Committee on Thursday introduced legislation to extend the PPP through May 31, ahead of its current expiration date on March 31.
“The demand for PPP loans right now is a testament to the program’s effectiveness and the lingering impacts of this pandemic,” Small Business Committee Chair Nydia Velázquez said in a statement. “That’s why we cannot cut off aid now and this short-term extension is so important.”
To continue providing economic relief to Americans during COVID-19, two House Democrats called on the Internal Revenue Service on Monday to extend the the 2021 tax filing season past April 15.
Ways and Means Committee Chair Richard Neal and Oversight Subcommittee Chair Bill Pascrell, Jr. said in a joint statement that at the end of February, the number of returns filed was down nearly 25% year-over-year, while only 27% of phone calls to the IRS were answered, indicating that a majority of taxpayers weren’t getting the help they needed in filing taxes.
“We want to remind the IRS that many Americans continue to face the same health and economic challenges that necessitated an extension last year,” Neal and Pascrell said. “Facing enormous strain and anxiety, taxpayers need flexibility now. We demand that the IRS announce an extension as soon as possible.”
Last year, the IRS extended the tax filing season to July 15 – three months later than the usual April filing – and extending it again this year will allow time to account for changed laws within President Joe Biden’s American Rescue Plan, according to the statement. This includes unemployment benefits, with the first $10,200 of benefits set to be eliminated from taxation in 2020.
Accountants are also worried about the quickly approaching tax season deadline. In a March 4 letter, American Institute of Certified Public Accountants Chair Christopher W. Hesse, on behalf of the organization with more than 431,000 members, requested that the IRS extend the tax filing season to June 15.
“Maintaining the April 15 filing and payment deadline does not reflect the real-world hardship and challenges imposed on taxpayers and tax professionals,” Hesse wrote. “Therefore, we urgently request that the 2020 Federal income tax, information returns, and payments (e.g., extension and estimated payments) originally due April 15, 2021 be granted additional time to file and pay until June 15, 2021.”
In defense of the extension, Hesse cited circumstances reflecting its need, including:
A delay to the start of the 2020 tax filing season;
The second round of the Paycheck Protection Program required significant assistance to small business clients, and tax professionals are still assisting clients with the PPP’s first round loan forgiveness process;
The IRS’ delayed processing of 2019 tax returns;
And effects on staffing in the IRS due to the pandemic, which has made it difficult to respond to taxpayers’ questions.
Hesse also noted that there is still confusion regarding eligibility of the $1,400 stimulus checks, and whether they are taxable.
The Ways and Means Committee said on Twitter on Monday that the April 15 tax filing deadline does not give taxpayers the time they need to file appropriately.
“Taxpayers are facing enormous economic strain and anxiety this filing season,” the Committee said. “They need more time to get their questions answered and file accurate returns.”
To help the smallest businesses in the country facing financial hardships, President Joe Biden announced on Monday that he will implement changes to provide more equitable access to the Paycheck Protection Program (PPP).
The first round of PPP loans closed in August, and in December, Congress added funding that allowed the second round of PPP loans to open on January 13.
According to a White House fact sheet released on Monday, funding for businesses with fewer than 10 employees is up by 60% compared to last year, while funding to businesses in rural areas is up by 30%, and funding distributed through Community Development Financial Institutions and Minority Depository Institutions is up by more than 40%.
The remaining funds will be available for distribution through March 31.
The changes to the PPP that the president announced on Monday, which included prioritizing businesses with less than 20 employees and expanding the program’s access to underserved communities, are intended to build on the program’s demonstrated improvements.
“Getting our economy back means bringing our small businesses back,” Biden said in an announcement on Monday. “And that’s what we’re going to do and that’s what I’m doing today.”
Here are the five specific changes Biden made to the PPP:
(1) Instituting a 2-week period where only businesses with under 20 employees can apply for the program
To further target small businesses aid, Biden will institute a 14-day period, from February 24 to March 10, where only businesses with 20 employees and under will be allowed to apply for the PPP to “allow lenders to focus on serving these smallest businesses.”
The fact sheet says 98% of small businesses have fewer than 20 employees, and that they are the “Main Street businesses that anchor our neighborhoods and help families build wealth.”
Those businesses often struggle more than larger businesses in accessing relief, according to the fact sheet, which is why the two-week period will be implemented to ensure targeted aid.
(2) Providing more funding for sole proprieters and self-employed individuals
With many businesses without employees being structurally excluded from the PPP’s loan calculations, the president’s new changes will revise the loan calculation formula to ensure it includes sole proprieters, self-employed individuals, and independent contractors.
Also, $1 billion will be set aside for businesses in that category located in low and moderate income areas.
(3) Eliminating the restriction that prevents small business owners with non-fraud-related felonies from receiving PPP aid
According to current PPP requirements, a business is ineligible for the program if the owner has had an arrest or felony conviction related to financial assistance fraud in the last five years, or any other felony within the previous year.
To expand PPP access, Biden will adopt provisions in the bipartisan PPP Second Chance Act, which would eliminate the second felony restriction.
“Anyone who has rebuilt their life after being incarcerated should be celebrated and supported,” Sen. Ben Cardin of Maryland, one of the co-sponsors of the bill, said in a statement. “Congress created PPP to help all small businesses keep their employees on payroll, and there is no reason why a business owned by someone with an unrelated criminal record should be treated any differently.”
(4) Eliminating the restriction that prevents small business owners with student loan debt from receiving PPP aid
Business owners who are delinquent on a federal debt in the last seven years, including student loan debt, are currently ineligible to apply for the PPP.
With millions of Americans holding student loan debt, Biden called on the Small Business Administration to work with the Depts. of Treasury and Education to remove the student loan delinquency restriction, meaning that those who are late on paying back their loans will not be cut out of PPP eligibility.
(5) Ensuring access for non-citizens who are lawful residents to apply for PPP relief
While the PPP requirements specify that any lawful US resident can access the program, a lack of guidance from the SBA created inconsistencies for those using Individual Taxpayer Identification Numbers, making it difficult for them to get relief.
Biden directed the SBA to make clearer guidance so all eligible applicants will not be denied access to the PPP.
“We will ensure every dollar is spent well,” Biden said on Monday. “These changes will bring much-needed, long overdue help to small businesses who really need help staying open, maintaining jobs and making ends meet.”
Fast-food franchisees amassed more than $1 billion in federal aid through the Paycheck Protection Program (PPP), The Counter reported.
The PPP was created in the spring to help small businesses continue to pay employees as the COVID-19 pandemic led to widespread layoffs, with loans that could be forgiven under certain circumstances. The Counter’s analysis of loans over $3 million found that the largest loans to fast food and fast-casual restaurants went to companies that owned multiple franchises.
A Taco Bell franchisee in Minnesota, a Wendy’s franchisee in Texas, and a McDonald’s franchisee in Florida were all recipients of the maximum $10 million in aid, The Counter found. Not all franchisees are exactly small businesses, either. One PPP recipient was a group that owned more than 200 Pizza Hut locations across California.
Over half of the $552 billion in PPP funds went to just 5% of recipients, the Treasury Department found, and $30 billion of the funding went to restaurants. Chain restaurants became eligible for PPP loans through a loophole lobbied for by the National Restaurant Association: they were eligible as long as fewer than 500 people were employed at any one location.
“As small business owners, the nearly 2,000 independent franchisees who own and operate McDonald’s restaurants across the country have been proud to continue to serve communities, first responders, and frontline workers while providing meaningful employment to more than 800,000 individuals during this incredibly challenging time,” McDonald’s USA told Business Insider in an emailed statement. “As the law intended, independent small business owner franchisees were able to use PPP loans to support payroll for the continued employment of their local employees and minimize economic impact to the communities that have always been there for them,”
Wendy’s, Taco Bell, and Pizza Hut did not immediately respond to a request for comment.
Fast-food chains were only one of the controversial recipients of PPP loans. Business Insider found several other beneficiaries that raised some eyebrows, including Burning Man, the Ayn Rand Institute, and the national Girl Scouts of America.