Loopholes In Small Business Relief Program Allow Thriving Companies To Cash In

Small and struggling. Those were the companies meant to be helped by the Paycheck Protection Program, which offers loans to small businesses clobbered by the shutdown of the economy.

The program has helped many such companies. But the law's fine print didn't close all loopholes. Large companies, we now know, got loans. And, now it appears that companies didn't have to be struggling to win a loan, either.

When officials with Chembio Diagnostics heard about the Small Business Administration's Paycheck Protection Program, they jumped at the chance to get a share of the public money.

And they got it: nearly $3 million.

The Long Island, N.Y.-based company, which also has offices in Berlin and Brazil, develops and manufactures infectious disease tests. Its work includes tests for HIV, Ebola and Zika. Earlier this month, company officials announced that they got emergency approval from the FDA to use a rapid COVID-19 test. That created a huge business opportunity for them. Their stock price went from an average of about $5 a share last year to about $11 this week. The paycheck protection loan was the liquidity the company needed to help grow.

"For us to be able to increase our manufacturing capabilities, we thought that having this supplemental dollar amount or loan would be very helpful ... in helping us," says Gail Page, a Chembio board member and former interim CEO. "When you get these pandemics, then there's all of a sudden this big rush and you need to be able to supply."

The problem is that the program wasn't designed to help companies grow. It was meant to rescue small companies, nonprofits and self-employed people struggling to make payroll or pay benefits and utilities. Companies or organizations that otherwise would have to lay people off. And because the loan money will run out — all $660 billion of it once the two rounds of the PPP program are done — every dollar that goes to a company that is thriving in the current crisis doesn't go to one of the small, struggling companies meant to be helped.

"The goal here isn't to expand the size of the companies," says Marc Goldwein, senior policy director for the D.C.-based Committee for a Responsible Federal Budget. "The goal here is to kind of keep them alive while we get through this crisis."

Goldwein says it's not acceptable for companies to participate in the program when they're actually benefiting from coronavirus: "Companies have to self-certify that they need this money because they are experiencing adverse affects."

Page says it was totally proper for her company, which has gotten government grants over the years to work on testing, to take the paycheck protection money.

"When you have a crisis like this, a lot of your customer base that you depended upon for your revenue, it kind of slips over here to the side," she says. "In order for us to stay viable, we felt like we needed to participate."

One problem with the first round of disbursements was that the law was murky. Sen. Rick Scott, R-Fla., expressed concern in a written statement last week that companies not harmed by the pandemic found loopholes and got millions of dollars in loans. Much of those loans will be forgiven by the government if they're used properly.

"Congress must clarify that PPP loans will only be available to businesses that show a substantial reduction in revenue due to the coronavirus," Scott said.

Officials on Monday began issuing a second round of disbursements totaling $311 billion. Goldwein says the question is whether mistakes will be repeated.

"In this next round of funds, it looks like the SBA will be doing some more oversight," he says.

Treasury Secretary Steven Mnuchin has told companies that received loans but may not have qualified that they have a grace period to return it. About $2 billion has been declined or returned so far, according to SBA Administrator Jovita Carranza. That money will now be made available in this second round of loans, she said.

When asked whether Chembio will return the nearly $3 million loan, Page says the company "will monitor the situation."

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