Paycheque Protection Program Needs To Be Expanded And Replenished To Help Smaller Businesses
By Neil Hare
One year after Paycheque Protection Program (PPP), it’s clear that America’s smallest businesses – especially those owned by minorities, women, and veterans – have struggled to access government support. And now, just as recent regulatory changes have finally given them priority, the program will expire on May 31, 2021. To ensure that these companies survive the challenges of the Covid-19 pandemic, the PPP should be extended until the end of 2021 and replenished with at least $ 75 billion.
Despite some harsh criticism, obvious loopholes and constantly evolving rules, the PPP has largely been a success. For many businesses, it was the intended lifeline to survive the Covid-19 pandemic and shutdowns. But for many other companies, this was not enough and they fell victim to the economic effects of the pandemic. Thanks to the Economic Aid Act (EAA) signed by President Trump in December 2020 and the US Rescue Plan (ARP) signed by President Biden in March 2021, we are now in the third round of PPP funding. Smaller businesses are finally getting what they need, but most observers predict funds will run out before the May 31 deadline.
Positive impact of bipartite regulatory changes
In December and February, there were three critical regulatory changes that collectively and significantly addressed the needs of businesses with fewer than 20 employees as well as minority-owned, women-owned and veteran-owned businesses. In December, President Trump increased origination fees so that small loans, typically $ 10,000 to $ 15,000 each, became profitable for more lenders who previously ignored smaller businesses. In February, President Biden simplified rules for independent contractors and sole proprietors, allowing them to use gross income rather than net income to support their loan applications, and set aside $ 1 billion just for these businesses.
And, perhaps more usefully, the February rules also created an exclusive 14-day loan application period for businesses with less than 20 employees, which make up 98% of small businesses in America. A Small Business Administration (SBA) study from March 9, 2021 reported that the exclusive 14-day period had the desired effect, showing a dramatic increase in the average daily loan rate during this period compared to the 10-day prior rate. The SBA reported the following statistics:
- Minority-owned business apps increased 20%, with 1,000 more businesses accessing relief every day
- Women-owned businesses up 14%, or 600 more businesses with access to relief every day
- Small rural businesses up 12%, or 1,000 more businesses accessing relief every day
The last round of PPP funding also set aside funds for smaller businesses and those in economically struggling areas of the country. This included $ 15 billion for first PPP draws for companies with less than 10 employees, $ 25 billion for second draws for the same group, and $ 15 billion for community financial institutions that primarily fund companies owned by companies. minorities and women.
The SBA further reported the following additional positive impacts on smaller businesses:
- P3 loans to small businesses with less than 10 employees are up 60% from the same period last year.
- 94% of PPP loans in the current cycle went to companies with less than 20 employees representing 51% of loan volume.
While these figures are encouraging, many parts of the country remain under orders for closures or other restrictions on businesses, especially retailers and restaurants. While vaccine distribution programs help, there are still outbreaks of Covid-19 as well as a large percentage of the population saying they will not get vaccinated. It is clear that more help is needed for small businesses.
What should he follow after the last PPP deadline?
A study by Facebook of more than 11,000 small business owners showed that as of December 31, 2020, 25% of small businesses were closed temporarily or permanently. Out of about 24 million small businesses in America, that translates to 6 million businesses that never reopen or suffer huge losses. And, according to the Quarterly Index from the United States Chamber of Commerce, in the first quarter of 2021, 75% of small businesses remained concerned about the negative impact of Covid on their business despite the new vaccines. While there is optimism about vaccines, the majority of companies in the House Index believe it will be six months to a year before business returns to normal.
So what should happen next to help small businesses in America? Here are five ideas:
- Extend the PPP until December 31, 2021, fund it with at least $ 75 billion, and cap loans at $ 50,000. It’s the fastest, easiest way to help 15 million small businesses. EAA and ARP have made significant improvements to PPPs that have clearly helped businesses owned by minorities, women and ex-combatants, as well as those in low-income communities. Why stop now? PPPs can continue to be improved through 2021 to lower the loan ceiling, make it easier to secure second drawdowns, and relax forgiveness rules – all for the smallest and most vulnerable small businesses.
- Create and finance new support mechanisms for small businesses. In addition to the new PPP funds, recent legislation has brought additional relief to the hardest hit sectors like restaurants and live entertainment venues. Although these new grant programs are slow to come online, eventually the money will start pouring in and providing much needed help. But the government should not stop there. New programs for different sectors, geographies and demographic groups are expected to be developed and brought online in 2021 and 2022. PPPs have shown that government can be creative and work quickly in a bipartisan fashion when the stakes are high – and they are. always.
- Reduce the regulatory and tax burden on small businesses. Filing quarterly taxes alone costs business owners time and money. Not to mention the magnitude of the tax burden that disproportionately impacts small businesses. Large businesses have many opportunities for tax evasion that small businesses do not have, and they should not be lumped together in the same tax policy. Now is the perfect opportunity to make changes to make it easier for small businesses to keep the income they have instead of returning it to government when they need it most. Extending a tax holiday by a few quarters would be a simple and effective way to start.
- Empower fintechs and other private lenders to finance small businesses. According to the Innovative Lending Platform Association, online lenders have stepped in to provide around 500,000 PPP loans to help banks meet demand. Some of these lenders include Paypal and Square and fintechs such as Kabbage and Fundbox. New businesses are also coming online to meet the financing needs of small businesses. San Francisco-based start-up SMBX, for example, offers an online platform for small businesses to issue bonds to their customers, communities and financial institutions. These companies should be encouraged to continue to find ways to provide new sources of capital to small businesses.
- The focus on businesses owned by minorities, ex-combatants, women and rural areas should continue. As with the health impacts of Covid, the economic impact on minority and women owned businesses has been disproportionately felt. Eight-six percent of minority respondents on the House Index said they were worried about the future of their business due to Covid, 10% more than small businesses in general. And, according to the Facebook poll, more women-owned businesses have been closed than those owned by men, in part due to caregiving responsibilities. These groups should be targeted with education, resources and easy access to government funding and private sources of capital.
Like many lessons learned during the Covid pandemic, PPP has highlighted the many burdens placed on small businesses and the vast lack of ‘know-how’ and ‘know-who’ in the business world. Just as minorities have suffered higher rates of contracts and death from Covid, minority-owned businesses have also received PPP loans at a lower rate. And, as the stock market hit record highs with some public companies making record profits, conversely, many American small business owners took on huge debt and saw a lifetime of work disappear overnight. .
Covid has highlighted the importance of our small business community like nothing has done before. While all of the politicians talking about small business use the same line that they are “the backbone of our economy, provide the most innovation and create the most jobs,” this sentiment does not always translate. by a policy useful for these small businesses. Despite what we all hope, the Covid pandemic is far from over, and for many small businesses the impact will be felt in the years to come. If the US government truly believes small businesses are so essential to our economy, it must remain focused on the health of our small businesses and expand and replenish P3s.
About the Author
Neil Hare is a lawyer with the law firm McCarthy Wilson LLP, and president of Global Vision Communications, where he specializes in small business policy, advocacy and communication campaigns; follow him on twitter @nehare and on LinkedIn. See more articles from Neil and his full biography at AllBusiness.com.
This article was originally published on AllBusiness.com.