The COVID-19 economic crisis has been catastrophic for small businesses across America. Most mom-and-pop shops lining Main Street, USA, don’t have the safety nets to weather storms like this.
And while the government threw out a lifeline with its Paycheck Protection Program, businesses in need are finding that lifeline hard to grasp as applications flood the system and funds run dry. Among those waiting for relief money are local cleaners, barbers, and personal trainers, who shared their stories with Fast Company.
They’re now joined by a handful of multimillion-dollar hedge funds, who are also lining up for government support—or as Bloomberg put it, “Free money.”
“That’s the enticing prospect hedge funds and other trading firms are pondering after realizing they too might be able to participate in a historic U.S. stimulus package to keep small businesses alive through the coronavirus pandemic,” Bloomberg reported on Tuesday.
Many hedge funds do qualify for Paycheck Protection Program loans, as most have fewer than 500 staffers. In fact, hedge funds typically hire as few people as possible so that their top traders don’t have to split millions in management fees—which is ironically convenient when it comes to PPP eligibility.
Also convenient is hedge funds’ access to high-powered law firms, which were quick to tell clients of the program and how they could tap into it. According to Bloomberg, lawyers were hosting webinars on the program in early April, and some hedge fund managers have already applied for PPP loans, which are distributed on a first-come, first-served basis.
Morally speaking, the question of whether hedge funds should be rushing for small business aid has been divisive. According to Bloomberg, some traders “insist they are small businesses—just like hair salons, restaurants and dry cleaners—that could use a helping hand after global markets tumbled and cost them money.”
And Anthony Scaramucci, former White House communications director and owner of SkyBridge, a firm that invests in hedge funds, argued to Bloomberg that applying for loans “might make sense” for some funds. In a previous interview with MSNBC, he commented that “just because the business has a name, private equity or hedge fund manager, doesn’t necessarily mean that they’re loaded with rich people.”
While PPP provisions state that banks and insurance companies cannot receive loans, it’s still unclear how they’ll treat hedge funds and proprietary trading shops. The U.S. Treasury and the Small Business Administration have yet to address the issue.