The Moral Dilemma of the PPP Loan

The Moral Dilemma of the PPP Loan

May 06, 2020

As a small business owner, the onset of the Pandemic was terrifying.  Not only is our income reliant on our businesses but our employees’ incomes are also reliant on the business.  As the pandemic news and shutdowns came fast and furious during the first couple of weeks, many of us breathed a sigh of relief when on March 27, President Trump signed the CARES act.  A key provision in this act was forgivable loans to small businesses.

Within a week, small businesses were allowed to apply.  The original wording all seemed to focus one key phrase – The economic uncertainty makes this loan necessary.  Between March 27 and April 4 (approx. first day to apply), every small business was experiencing economic uncertainty and most likely submitted their PPP loan application.  I was one of the applicants.

However, over this time, it was also clear that some small business were decimated by the shut down while others were just experiencing a reduction in income. Restaurants, Fitness Facilities, and Hair Salons are just a couple of the businesses that could barely operate and make money.  Many other businesses, such as financial advisors like myself, continued to make money.  In my industry, many of us earn revenue by charging our clients a percentage on the amount of assets that we manage.  So, if the market goes down, we make less money, but we still make money.  We are not shut down.

After the first round of loans requests were funded, the wording on the loan application seemed to take on a new stronger meaning.  Business were being asked to certify “current economic uncertainty that makes this loan request necessary to support the ongoing operations of the applicant.”  As I contemplated my situation, I decided to withdraw my application.  It just seemed wrong.  If my business cannot continue with a 20% drop in revenue, I am not a very good business person.  Just like I advise my clients, I should have a cash reserve and a business plan for when a recession occurs.  I certainly did not want to take money from a business that needed it far more than I.

Much debate is occurring in the financial advisor world right now regarding this situation.  Most advisors I know have applied.  Many are being funded with the second round of funding.  However, is their loan really NECESSARY? Some advisors have said it will support new business development efforts they will need to make with Social distancing the norm.  Others are using it to cover their lost revenue. That seems far different than the needs of a small business that has had to shutter its doors.

The two regulatory agencies in our industry, the SEC and FINRA, seem to be heading towards two different rules regarding disclosures on the loans.  The SEC will require a disclosure on some PPP loans, while FINRA will not.  If this issue is a concern for you, you will be able to ask your advisor if they received a loan.  You might want to ask them how they used the loan.   

This issue has created a moral dilemma for small businesses and not just ones in my industry.  Who should be getting these loans and how should they be used?  Do you feel differently about doing business with someone or a business that took the loan but didn’t need it to support ongoing operations?  Is “economic uncertainty” enough or should we be applying the more stringent rules of “necessary to support the ongoing operations”?  Please share your thoughts. 

This commentary was created by Aspire Planning Group and is for informational purposes only. The views expressed are based on current market conditions and are subject to change. The commentary does not take into account any investor’s particular investment objectives, strategies, tax status, or time horizon. There are no assurances that the techniques and strategies discussed are suitable for all investors or that the predicted results will occur. The commentary does not constitute investment advice, tax advice, or legal advice. All investments are subject to risk, and past performance is no guarantee of future results.
Aspire Planning Group, LLC is a d/b/a of HighPoint Advisor Group, LLC (HPAG), a registered investment advisor. For current HPAG information, please visit and search by CRD#163768.