Washington D.C. — U.S. Senator Marco Rubio (R-FL) joined THRIVE, a PAYCHEX Business Podcast, to discuss the success and future of the Paycheck Protection Program (PPP). See below for lightly edited highlights and listen to the full interview here.
“Interestingly enough, we had started work on it early in the process, initially as a tool for dealing with supply chains. We had done some work two years earlier, arguing that too much of our supply chain was being derived from vulnerable places overseas, primarily because of geopolitics. We were thinking: ‘What is small business’s role? And what can we do to repurpose some of these loans that are run through private lenders to small businesses in these key industries where we need to develop some resilience in our economy and the supply chain?’
“When the pandemic sort of emerged, our next view of it is: ‘Well, we're going to have some supply chain disruptions because of the pandemic, particularly on the health care side, but just generally. How can we even tune it up to deal with pandemic-specific supply chains?’
“By the time we got to that day in March, where it was apparent that we were going to have lockdowns or shutdowns of large portions of our economy, we realized: ‘My goodness, we're going to have entire Main Streets wiped out. They're not going to be able to open. The governments in some places are not going to allow them to open for potentially weeks.’ We didn't know how long, maybe months. ‘We're going to have a contagion here of unemployment, a commercial real estate crisis, and a bunch of small businesses that are going to vanish and never come back.’ So, we needed to step forward and do something to at least keep people attached to their jobs.
“The view over there was we're going to spend billions of dollars on unemployment benefits. Aren't we better off keeping people attached to an employer via a paycheck that also provides some money for the small business to be able to make their overhead payments and keep current on their leases and/or rent? That's how that came about fairly quickly.
“We understood that the SBA was too small to be able to do this through any of its existing programs. It would have to be run not just through the existing lenders that we now use for those loans, but in fact, we would have to amplify the number of lenders that were eligible to provide them.”
On who helped make PPP possible:
“The credit begins with my staff, the Small Business Committee, and myself as we worked through it in my own personal office. I also give credit to Senator Cardin and Senator Shaheen on the Democratic side. Senator Collins is another member of the committee on the Republican side who played a key role in sort of negotiating the details of it.
“Obviously, one of the intricacies of a country like ours that is so large and diverse is, for example, if you’re trying to help out a hotel or hospitality business, they’re seasonal in some parts of the country, so you have to adjust for that.
“Then the question came up of: ‘What do we do about non-profits, who have never traditionally been eligible for SBA loans or programs? What do we do about the growing number of Americans who are de facto small businesses but they’re independent contractors? They’re a one or two-person shop. What do we do for people who don’t have banking relationships? How do we get financial checks to lenders involved in this and [get them] to step up?’ So, they played a key role in putting all that together.
“The name I take credit for. I actually came up with the name Paycheck Protection Program because we wanted people to understand this was not a bail-out or give-away. This was a way to deliver, more effectively, unemployment benefits to people who weren’t technically unemployed but were going to be because their employer was shut down by a government measure.”
On how Rubio came up with PPP:
“I think the idea basically came from being very attuned to the needs of small businesses, from personally knowing a lot of small businesses. What I try to do is to put myself in their place: the guy that owns the diner we always go to, the friends that own a laundromat, individuals that have small retail outlets somewhere. Now the government says, not only can't you open, you're not allowed to open your restaurant…. Depending on where you live, that lasted for months. Now you can't open, you can't function. What do they do? They're going to go out of business is what's going to happen. They're going to disappear in a couple of weeks, everyone is going to be immediately laid off. What happens next?
“We tried to think through all of the impediments to them actually getting access to these funds in a timely way, because most small businesses only have maybe a week, maybe less, of cash on hand to do everything from pay their suppliers and orders to try to make payroll by Friday. There really isn't a model for it because…any time we've had a crisis in the past, the government is pretty good at bailing out large Fortune 500 companies, and did that again in some cases here, but it never has any experience at helping out the small business sector, which is very large, very diverse, and a huge, huge percentage of our economy.”
On the risks Rubio took in creating PPP:
“Obviously we weren't worried about inflation or stagflation because at that point there was going to be a systemic collapse. When you take 60 or 70 percent of your economy and close it down for a sustained period of time…, no one's ever experienced that before. No one knows what happens with inflation. At that point, you're really dealing with a borderline depression-type situation. That was our number one fear….
“My biggest fear was inaction. Could I prove that this medicine works? No. This is an experimental drug that we used, an experimental treatment. But the patient was terminal. I mean, in essence, we were going to face some things we've never faced before as a country…. It was going to do systemic architectural damage to our economy. In essence, this was going to be permanent damage that would probably take a decade to recover from. If it had happened, we would still be talking about that damage today. Had that been the case, some of these places would have never rebounded in time.
“We knew that there would be people that would try to commit fraud, and that's why we put in the capability to audit these loans. We required some paperwork upfront to show payroll and the like. But ultimately, we understood that we were going to have to roll the dice on this because the price of doing nothing was going to be extraordinarily damaging. There has been fraud, high-profile cases, but the fraud rate in PPP is substantially less than it is in…virtually every other SBA program.”
On criticism of PPP:
“I think people have to nitpick about whatever they want. But I asked people, what was the alternative like? What were you going to do with millions and millions and millions of small businesses that were going to shutter, close, be gone? And then the landlords in those commercial places were also not going to be collecting rent. How are you going to process all these people, millions of people that were going to immediately hit the unemployment rolls? We had trouble dealing in most states with the numbers as is. People couldn't get access to their benefits. How are you going to deal with that? How are you going to deal with the potential for civil unrest when angry people were out there rioting in the streets because they couldn't feed their families or pay their rent or keep the electricity on. So I think people haven't thought through all of those things when they argue [against PPP]. What was the alternative? They don't have one.
“And as far as fraud is concerned, yeah, there's [fraud]. Medicare is full of fraud…. No one's talking about banning Medicare. Medicaid is full of fraud. [There is] credit card fraud. Does anybody talk about getting rid of credit cards? The point is, the way you deal with fraud is you try to build some things at the front end to make it harder, but then you prosecute it at the back end. And that's what's happening. And it's happening because people are turning people in. It's happening because the larger loans, the big ones over a certain amount, could be audited and looked at. And you would have to keep that paperwork and prove that that's how you use the money. And so I think that's beginning to happen and that's what should happen. These people should go to jail and pay restitution for what they stole.”
On banks’ participation in PPP:
“A couple of things were happening. First, some of the banks were just [not] interested in [PPP] beyond their commercial clients, even their business accounts. They wanted their big commercial clients. And part of that was because they were easier to deal with. They had better record-keeping and a longer relationship with them. And so they sort of focused on that.
“You know, some of these banks were acting like the money was their money, that they were at risk. There was no risk for the bank. The bank was just basically passive. They were the middleman that would put up the money and then be guaranteed to be paid back. And their only job was to process the paperwork. And so my question to those banks was: ‘Well, what are you going to do when all your business customers and your individual account holders, for that matter, don't have any money to put in your bank? What are you going to do with that?’
“But ultimately, I think that was the big issue,...that the banks that had the existing commercial accounts…didn't want to deal with their business clients. People don't realize that just to have a business account, you're in a totally different section of a big bank. And so for them, it took some time to come around.
“The regional banks are the ones that really stepped up. We always thought that would be the case. We think regional banks are supremely positioned for this kind of lending, and some of them are very proactive about marketing this and in some ways ended up attracting a bunch of new account holders who haven't forgotten how those regional banks were there in their time of need….
“We paid the bankers a 1% fee [to] do nothing but process paperwork on behalf of government money. And there was no liability on their end whatsoever. Some of it was misunderstanding and not understanding the program well because it was brand new. Some of it, frankly, was they just weren't set up or that they didn't see the benefit of doing it. But ultimately most came around. And had they not, we'd be in a real tough spot right now.”
On communicating with banks and the U.S. Department of the Treasury:
“As we were drafting [PPP] and working through it, we were in communication with banks and lenders because we wanted to understand what it would take from a technical standpoint for them to be able to participate in it…. This is a seven or eight-day period in which slowly but surely we're seeing these rolling shutdowns across the country, some cases more severe than others. So I think every day that went by, there was some initial resistance to this. ‘What is this, a giveaway program? What is this?’ I think as the days went by and people realized the depth and scope of the danger behind all these measures, there was more and more willingness…, both among members of the Senate and House, but also, frankly, among the banking sector[, to get onboard with PPP].
“And then we also provided enough flexibility in the bill for the rulemaking, in essence, for Treasury to have enough flexibility to come in and tweak things. And then, you know, Treasury came out with this first set of Frequently Asked Questions. And so as we were getting questions, we were forwarding that to the treasury secretary and the Treasury. And they deserve a lot of credit because they use that flexibility to tweak the program to make sure that it was reaching the intended audience and that the legislative intent behind the bill was being achieved…. You can't anticipate everything that arises in the midst of this. And that's why you leave enough flexibility in the rulemaking side to ensure that the rules allow you to tweak things…, to make sure that they work.”
On Rubio’s involvement in PPP’s implementation:
“I felt like the screenwriter in dealing with the director and the producer of a movie: ‘That is what I envisioned when I wrote it. And so this is how we want it to work.’
“We were home at that point, so we were working off of Zoom. But we were, I would say, probably working 15 hours a day between Zoom calls with Chambers of Commerce, doing press events online to inform people about the existence of the program, talking to bankers, both regional and and large ones, and talking to the small business sector about the impediments that [they] were coming across. And then [there was] a bunch of family, friends, and people that I personally know, constituents that were calling in with complaints.
“Look, the first couple of days that this was going on, we had people going into banks, and they were running credit checks on them. And there's no credit check. We're just asking you to process the paperwork. We're going to pay you a 1% fee…. At that point, there wasn't a lot of banking activity happening, as you can imagine, with these things shut down. Many of their branches weren't even opened in many cases. This is happening online and so forth.
“So we stayed very involved with the implementation. And then people forget, but there was a certain amount of money, a guarantee that was gone within five or six days. There was so much that we had to figure out how to go back without bringing the entire Senate and House into session and pass a second and then a third wave of additional authorization for money so that there was money available for the lending.”
On the bipartisan support for PPP:
“Remember, the CARES Act involves so many other provisions that I would say that [PPP] was probably the most meaningful and the least controversial factor. I told the press in the hallway multiple times…: ‘Our work is done. If it was just up to us, we'd be ready to go.’ So it was the only piece of legislation that was reauthorized two other times…unanimously. They required a unanimous vote in the House, a unanimous vote in the Senate. We weren't even in session. So these were pro forma sessions and we got those things done and passed because of the lack of controversy around it.
“I think it was…an understanding of how critical and dire the situation was, it was real fear about the systemic risk posed to our economy…. I mean, that's why…a lot of it didn't have any sort of partisan overtones. It really didn't have any opposition, per se. You had some snide remarks and criticisms from individuals that always have something to criticize but never anything to offer. But generally speaking, we didn't come across any of that.
“And I always ask people the same thing. No one claims any program is perfect. It was drafted by humans. It applies to humans. And humans are imperfect. But what would we have done if we didn't have anything like PPP? What would America look like right now if the people and the companies who received these funds had to lay off their workers and shutter their doors? What would the country look like right now? It would not look like it looks right now. With all the problems we have, this would be on top of that. It would be, I would argue, catastrophic.”
On what Rubio might have done differently in hindsight:
“Well, I think maybe early on in the process, there was some difficulty about onboarding the financial tech companies, getting them on board. Some of these were new to the game, new to the process. So I think that maybe a better outreach at the front end, identifying some of these companies and how their processes would work [could have helped].
“I think an understanding of how some of these real small community lenders could have been incentivized [could have helped]. And we tried to do that by giving the higher percentage for the smaller loans so they would step on board.
“I think the one thing that I'm not sure we could have done differently and I certainly had an understanding of is how many people that really are small businesses, be they independent contractors or mom and pop shops, really didn't have banking relationships, and I understood that was real. I'm not sure that we explained that enough to people about the fact that there are businesses out there that actually don't have true business banking relationships. I mean, it's their personal account. They might deposit money, but for whatever reason, they generally never opened an account in the name of their business. They're an S corp, so they're passed through anyway. And I don't know if people understand that the food truck in some places doesn't have a corporate entity business account. And so when they go to a bank on behalf of that business, the bank's not in the business of opening up a new account just for people at that point. So I think I'm not sure what we're going to do differently about it other than recognize that as a real challenge early on and try to point that out to people….
“The one thing that would always tick me off is when I would hear someone say…, ‘We went to the bank and we weren't approved for a PPP.’ There was no approval process. There was just a verification process. So they were saying one of two things. Either by the time they went to the bank, the funds had run out, which ultimately was not the case, once we got to the second or third tranche. Or…they were saying they went to a bank somewhere that just didn't want to do the business for them, didn't want to do it for them. And what would really upset me is the second one.
“I do believe that there were small businesses that had to go through a harder time when they needed it because they weren't sophisticated owners. They were good at what they did at business, but they weren't sophisticated about the world of finance and banking. And bankers decided we don't really see a need to service people like this. They either don't have big enough deposits or they're not customers to begin with. And again, that's why I think these credit unions and regional banks are so critical.”
On the need to account for businesses separated from the world of finance:
“I think that's just going to be a growing nature of commercial transactions. You're seeing more and more cashless transactions going on. We’re not even talking about crypto and what that all is going to mean because it's sort of uncertain at this point. But…technology has now allowed a business to be someone working out of a spare bedroom of their home, using these very Wi-Fi signals that we're using now to conduct this interview. I think a lot of people have learned that there are a lot of businesses and business activity that you can do without a P.O. box, without a front office. I think the technology has eliminated the barrier to entry for a business person…. What do you do about the guy that drives for Uber or Uber Eats and also has a second job as a landscape contractor? Neither one probably…has a banking account.”
On the future of PPP as a model for investing in small businesses:
“I think there's the potential for going back to what we had originally talked about, which is how do we get small businesses to become part of our supply chain solutions in this country? Not every supply chain, whether it's in services or goods, has to be built on the back of some large operation half a world away. So is there a place for small businesses? The hardest thing to do in that regard is get financed. So is there a way to sort of focus on some key industries and provide financing, favorable financing through the SBA, for small businesses that are in key sectors and can help us with either a critical national need or a potential supply chain vulnerability that the country has?
“But the best way to think about PPP is eminent domain. If the government comes tomorrow and says: ‘That property that you own and that you use to live in or for business, we need it. We need it for the public good.’ They can do that. They have the power to do that. They have to compensate you. We have to…give you money so that you can go and buy another property, continue on your business. In many ways, that's what the pandemic shutdowns were. They went into businesses and said: ‘You cannot operate, you can't seek customers. You can't have people come in, you can't open the gym or the yoga studio or whatever it might be. You can't do it.’ And so the argument is, in this case: ‘Fine, you're going to take this from us. Then you have to at least help us pay our employees or they're going to come after you for unemployment. You've got to help us pay our rent or you're going to ruin our credit and you're going to begin the collapse of commercial real estate in this country as well.’ And that's what we did. There was no profit built into this. All the money here was either for payroll or for overhead, not for profit. And, you know, that didn't solve the problem for everybody. It solved the problem for millions of people and millions of businesses.”
On how the success of PPP makes Rubio feel:
“Not only was [PPP] the most impactful legislation I've ever passed, I believe it's been the most impactful legislation that the Congress has undertaken in a quarter century or longer. And that's how dramatic of an impact [it had]. When you talk about 12, 13 million small businesses that would have vanished in this country overnight, no one can tell you what that does to an economy and how many of them would not have survived, let's say half of them or not. So that would have been cataclysmic. So, yes, I think this was an intervention that was incredibly meaningful. And yes, it does make our service meaningful.
“I mean, we go up to D.C…every week, and largely nowadays, especially now that we're in the minority, we're debating stuff that's never going to pass or we're arguing over things that are important and have an impact. But most people, it doesn't impact their lives. This is probably one of the few and rare times where we were able to get something done and done quickly that actually impacted real people in a dramatic, life-changing way, immediately. And you don't get very many opportunities to do that…. If my service…ended this very day, I'd be able to say that my time there was meaningful just because of this. Not to mention all the other things that we're doing.”