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."
STEVE INSKEEP, HOST:
Here is the harsh math of the Paycheck Protection Program. Hundreds of billions of dollars in U.S. government loans are not nearly enough for every small business in need. So when one company gets a loan, it means that others may not. That's why it matters that a company received millions at the very moment that its business was booming. NPR investigative correspondent Cheryl W. Thompson reports.
CHERYL W THOMPSON, BYLINE: If there's one sector of the economy that's in high demand right now, it's medical testing. Earlier this month, Long Island-based Chembio Diagnostics was one of the first companies to get emergency FDA approval for a blood test to detect COVID-19 antibodies. And, says board member and former Interim CEO Gail Page, they're looking to grow.
GAIL PAGE: In order for us to ramp up and do the things we need to do to increase our manufacturing capabilities, you know, we felt like having this supplemental, you know, dollar amount or law would be very helpful in helping us. And it employs people.
THOMPSON: The loan she's referring to is the SBA's Paycheck Protection Program. Chembio makes diagnostic tests for all kinds of infectious diseases. They worked on HIV, Ebola, Zika and others. FDA approval of the company's finger-prick COVID-19 test created a huge opportunity. Their stock price averaged about $5 a share over the last year. Yesterday, it closed at about $11. The paycheck protection loan would give them the liquidity to help them grow. They applied for and got nearly $3 million.
PAGE: When you get these pandemics then there's, all of a sudden, this big rush. And you need to be able to supply.
THOMPSON: The problem is that's not what the Paycheck Protection Program is designed to do.
MARC GOLDWEIN: The goal here isn't to expand the size of companies. The goal here is to kind of keep them alive while we get through this crisis.
THOMPSON: Marc Goldwein is the senior policy director for the Committee for a Responsible Federal Budget in Washington, D.C. He says the program is for companies that are struggling, losing customers, laying off employees, on the brink of shutting down.
GOLDWEIN: Companies have to self-certify that they need this money because they are experiencing adverse effects. If they are not experiencing adverse effects, it's probably inappropriate.
THOMPSON: Gail Page says it was totally proper for Chembio, which has gotten government grants over the years to work on diagnostic testing, to take the paycheck protection money.
PAGE: When you have a crisis like this, a lot of the customer base that you depended upon your revenue, it kind of slips over here to the side. So in order for us to stay viable, you know, we felt like we needed to participate. And stock price doesn't represent, necessarily, cash in the bank.
THOMPSON: One issue with the first round of disbursements was that the law was murky. Florida Republican Senator Rick Scott expressed concern last week that companies not hurt by the pandemic found loopholes and got millions of dollars. And remember, even though they're given this loans, most of the money will be forgiven by the government as long as it's used appropriately. Earlier this week, officials began issuing a second round of loans, $311 billion. The question is whether mistakes will be repeated, Goldwein says.
GOLDWEIN: In fact, in this next round of funds, it looks like the SBA will be doing some more oversight.
THOMPSON: Treasury Secretary Steve Mnuchin has told companies that received money but may not have qualified that they have a grace period to return it. The SBA told NPR that $2 billion has been declined or returned so far. That money will now be available in the current application process. Gail Page, the board member at Chembio, says the company hasn't decided whether to return the nearly $3 million loan it received.
Cheryl W. Thompson. NPR News. Transcript provided by NPR, Copyright NPR.