By Neil Hare
One year into the Paycheck Protection Program (PPP) it is 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 prioritized them, the program will expire on May 31, 2021. To ensure these companies weather the challenges of the Covid-19 pandemic, PPP should be extended through the end of 2021 and supplemented with at least $ 75 billion.
Despite some vocal reviewers, obvious flaws, and ever-changing rules, PPP has been largely a success. For many companies, it was the intended lifeline to survive the Covid-19 pandemic and shutdowns. For many other companies, however, this was not enough and they fell victim to the economic impact of the pandemic. Thanks to the Economic Aid Act (EAA) signed by President Trump in December 2020 and the American Rescue Plan (ARP) signed by President Biden in March 2021, we are now in the third round of PPP funding. The smallest businesses are finally getting what they need, but most observers predict that funds will be used up before May 31st.
Positive effects of bipartisan regulatory changes
In December and February there were three major regulatory changes that collectively and sensibly addressed the needs of companies with fewer than 20 employees, as well as minority, women and veteran owned companies. In December, President Trump increased the origination fee, making smaller loans, typically $ 10,000-15,000 each, profitable for more lenders who had previously ignored the smallest businesses. In February President Biden simplified rules for independent contractors and sole proprietorshipsThis allows them to use the gross income instead of the net income to support their loan applications and set aside $ 1 billion exclusively for these companies.
And perhaps most helpful, the February rules also included a 14-day exclusive loan application period for companies with fewer than 20 employees, which is 98% of US small businesses. A study by the Small Business Administration (SBA) dated March 9, 2021 reported that the 14-day exclusive period had the desired effects and showed a dramatic increase in the daily average lending rate during this period compared to the rate of 10 days earlier. The SBA reported the following statistics:
- Minority business applications increase 20% or an additional 1,000 companies accessing facilities daily
- Women-owned businesses grow 14%, or another 600 businesses that get daily access to facilities
- Rural small businesses grow 12%, or another 1,000 businesses that get daily access to relief
The most recent round of PPP funding also provided funding to the smallest businesses and businesses in economically disadvantaged areas of the country. This included $ 15 billion for first-time PPP draws for companies under 10 employees, $ 25 billion for second draws for the same group, and $ 15 billion for financial institutions in the community that primarily fund minority and women-owned companies .
The SBA continues reported the following additional positive effects on the smallest businesses:
- PPP loans to small businesses with fewer than 10 employees are up 60% over the same period last year.
- 94% of the PPP loans in the current round went to companies with fewer than 20 employees, which make up 51% of the loan volume.
While these numbers are encouraging, many areas of the country continue to be subject to closure orders or other restrictions on businesses, particularly retailers and restaurants. While the vaccine distribution programs are helping, there is still a surge in Covid-19, as well as a large percentage of the population who say they will not be vaccinated. It is clear that more help is needed for small businesses.
What should come next after the final PPP deadline?
A study From Facebook, over 11,000 small business owners showed that 25% of small businesses were temporarily or permanently closed as of December 31, 2020. Out of roughly 24 million small businesses in America, that means 6 million businesses never reopen or suffer huge losses. And after the Quarterly index from the US Chamber of CommerceIn the first quarter of 2021, a whopping 75% of small businesses continued to be concerned about the negative impact Covid had on their business, despite the new vaccines. While the vaccines are bullish, the majority of companies in the Chamber Index believe it will take six months to a year for business to return to normal.
What Should Happen Next to Help America’s Small Businesses? Here are five ideas:
- Extend PPP through December 31, 2021, fund it with at least $ 75 billion, and cap loans to $ 50,000. It’s the fastest, easiest way to help 15 million small businesses. The EAA and ARP have made significant PPP improvements that have been shown to have helped minority, female, and veteran-owned businesses, as well as businesses in low-income communities. Why stop now? PPP can be further enhanced during 2021 to set a lower limit on credit, make it easier to get second moves, and simplify the rules for forgiveness – all only for the smallest and most vulnerable small businesses.
- Creation and funding of new small business aid mechanisms. In addition to the new PPP funds, recent legislation has given additional relief to the hardest-hit sectors such as restaurants and live entertainment venues. While these new grant programs are slow to come online, at some point the money will flow in and bring much-needed relief. But the government shouldn’t stop there. New programs for different sectors, geographic regions and demographic groups should be developed and brought online in 2021 and 2022. PPP has shown that government can be creative and fast and bipartisan when it comes to high stakes – and it still is.
- Reduce regulatory and tax burdens on small businesses. Filing quarterly taxes alone costs entrepreneurs time and money. Not to mention the amount of tax that disproportionately affects small businesses. Large companies have many tax avoidance options that small companies do not and they should not be part of the same tax policy. Now is the perfect opportunity to make changes to make it easier for small businesses to keep their earnings instead of sending them back to the government when they need it most. Extending tax leave by a few quarters would be a good and easy way to get started.
- Enable fintechs and other private lenders to finance small businesses. According to the Innovative Lending Platform Association, online lenders have provided around 500,000 PPP loans to help banks meet demand. Some of these lenders are Paypal and Square, as well as fintechs like Kabbage and Fundbox. New businesses are also coming online to meet small business finance needs. For example, San Francisco-based startup SMBX provides an online platform for small businesses to issue bonds to their customers, communities, and financial institutions. These companies should be motivated to continue to find ways to provide new sources of capital for small businesses.
- The focus on businesses in minority, veteran, women and rural areas should continue. As with the health effects of Covid, the economic impact on minority and women-owned companies has been felt disproportionately. 86 percent of minority respondents in the Chamber’s index said they had concerns about the future of their business due to Covid, 10 percent more than small businesses in general. According to the Facebook survey, more women-owned businesses closed than men-owned businesses, in part due to responsibility for care. These groups should be addressed with education, resources, and easy access to government and private sources of capital.
Like many lessons from the Covid pandemic, PPP has exposed the many burdens on small businesses and the huge “know-how” and “know-who” gap across the business world. Just as minorities suffered higher contract and death rates under Covid, minority-owned companies also received PPP loans at a lower interest rate. And when the stock market hit record highs with some listed companies generating record earnings, many small business owners in America went into huge debt and watched them vanish overnight for a lifetime.
Covid has brought the importance of our small business world to the fore in a way that has not been seen before. While any small business politician uses the same line that “is the backbone of our economy, innovates the most, and creates the most jobs,” that feeling does not always result in policies that are helpful for these small businesses. Despite what we all hope, the Covid pandemic is far from over and many small businesses will feel the effects in the years to come. If the US government really believes that small businesses are that important to our economy, it must continue to focus on the health of our small businesses and expand and replenish PPPs.
About the author
Neil Hare is an attorney in the law firm McCarthy Wilson LLPand president of Global Vision Communicationswhere he specializes in small business politics, advocacy and communication campaigns; follow him on Twitter @nehare and further LinkedIn. For more articles by Neil and the full bio, visit AllBusiness.com.
This article was originally published on AllBusiness.com.