Joe Biden uses arbitrary and contradictory definition to criticize small business loans
In a virtual campaign stop focused on La Crosse, Wisconsin on May 20, Democratic presidential candidate Joe Biden aimed at the federal government’s response to small business problems.
In early May 2020, nearly one in three small businesses said they had closed temporarily, and nearly a quarter said they were within two months of closing, according to a MetLife and House survey. of the United States.
The government’s main response has been the Paycheck Protection Program, which has distributed more than $ 500 billion in forgivable loans to small businesses to use for payroll, mortgages, rent, and utilities.
But Biden said much of that effort missed the mark – small businesses.
“Small businesses are the foundation of our communities and this country and the American dream. And they also hire more people than all of those big companies put together,” Biden said on the live broadcast. “Now, because of what I would call a corrupt recovery that aims to help the rich, the well-connected, not the millions of moms and dads facing financial ruin, the warning signs are flashing.
“Forty percent of the initial small business funds did not go to small businesses at all.”
We will focus on this last line.
Did 40% of PPP funds really go anywhere other than small businesses?
The PPP was intended as a lifeline to overcome the economic crisis, but the funds quickly disappeared. The first pool of nearly $ 350 billion was exhausted on April 16, with 80% of applicants unable to secure funding, the Washington Post reported.
A second round of financing was made available from May 1. As of May 21, the program had approved 4.4 million loans for a total of $ 512 billion. The average loan was $ 116,232.
Loans can be fully forgiven if the funds are used for salary costs, mortgage interest, rent, and utilities. Loans are subject to various requirements, such as using at least 75% of funds for payroll and retaining or rehiring employees quickly.
But there has been a controversy over who received the funds.
Many large companies have repaid the funds they received under the program following public outrage, including Shake Shack and Potbelly.
More than $ 1 billion from the first round of funding went to publicly traded companies, the Washington Post reported. And 43 loans were made to companies with more than 500 workers.
The Small Business Administration, which administers the PPP, generally defines a small business as a business with fewer than 500 employees, although this number can vary by industry. And the PPP included exceptions for some companies above this level.
The SBA has not released data on the size of companies receiving loans. Agency spokeswoman Carol Chastang said they intended to do so, but not until the PPP ended.
Thus, the only data available that speaks of the size of the business is the size of the loans.
Biden spokesman Michael Gwin said that was what the former vice president based his request on, assuming bigger loans meant bigger businesses, as the funding is mostly intended to cover payroll.
Biden referred to the “initial” round of P3 funding, which ended on April 16. Within this group, about 44% of the money was distributed in the form of loans of over $ 1 million.
More recent data was available at the time Biden said this, however, taking into account all loans up to May 16. At this point, about 36% of all financing was in loans over $ 1 million.
Thus, 40% of PPP funding went to larger loans, around the figure cited by Biden.
But is it correct to say that this part is not intended for small businesses?
Biden tries to play both ways
Biden’s statement hinges on the definition of small business – and he uses two himself.
The Biden-referenced program is administered by the SBA and specifically authorizes loans to businesses that meet that agency’s definition – typically 500 or fewer employees. So, according to this definition, every business that receives a loan is a small business.
We gave US Senator Ron Johnson a rating of True when he relied on this SBA definition in May 2019 to say “99.4% of businesses in Wisconsin are small businesses.”
And Biden himself indirectly used that definition moments before he claimed 40%, when he said that small businesses “hire more people than all the big companies combined.” Gwin confirmed that this was a paraphrase of an SBA statistic showing that small businesses employ about half of the private workforce.
This SBA statistic is only true if you define small businesses as businesses with 500 or fewer employees. If you lower the threshold to 100, that group employs a third. If the threshold is 20 employees, it is less than a quarter of the private workforce.
So Biden used the 500 employee threshold to demonstrate the importance of small businesses, then immediately ditched it to claim that the companies that get the biggest loans aren’t actually small.
That is problematic. It’s fair for Biden to argue that some of the companies receiving the loans aren’t what many would consider “small,” but it’s not fair to use two different definitions to make neighboring points.
Biden said that “40% of the initial small business funds did not go to small businesses at all.”
We don’t know the actual size of the businesses that get the loans, so Biden creates his own definition of “small business” based on the size of the loan. A definition that conflicts with the official government definition used by this program.
Plus, this definition conflicts with how he referred to small businesses a few sentences earlier to discuss the impact they have on the economy.
There is some truth here. The 40 percent figure roughly matches the portion of the loans that exceeds $ 1 million, which, given the purpose of the loan, means these companies have operating budgets of at least several million. of dollars.
But the way Biden explained that figure conflicts with both the government’s definition and his own definition from a moment earlier.
We assess this claim primarily as false.