By Neil Hare
One year into the Paycheck Protection Program (PPP), it is clear that the smallest businesses in America—particularly those owned by minorities, women, and veterans—struggled to access the government support. And now, just as recent regulatory changes have finally prioritized them, the program is set to expire May 31, 2021. To ensure these businesses survive the challenges of the Covid-19 pandemic, PPP should be extended until the end of 2021 and replenished with at least $75 billion.
Despite some vocal critics, obvious shortcomings, and ever-changing rules, PPP has largely been a success. For many businesses, it was the intended lifeline for surviving the Covid-19 pandemic and shutdowns. But, for many other businesses it wasn’t enough, and they became casualties of the economic effects 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 are predicting the funds will run out prior to the May 31 deadline.
Positive impact of bipartisan regulatory changes
In December and February, there were three critical regulatory changes that collectively and meaningfully addressed the needs of businesses with fewer than 20 employees as well as minority, women, and veteran-owned businesses. In December President Trump increased the origination fee so smaller loans, typically $10,000-$15,000 each, became profitable for more lenders that previously had been ignoring the smallest 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 solely for these businesses.
And, perhaps most helpful, the February rules also created a 14-day exclusive loan application period for businesses with fewer than 20 employees, which are 98% of U.S. small businesses. A March 9, 2021 Small Business Administration (SBA) study reported that the 14-day exclusive period had the desired impact, showing a dramatic increase in the daily average rate of loans during that time compared to the rate 10 days before. The SBA reported the following statistics:
- Minority-owned business applications up 20%, or an additional 1,000 businesses accessing relief each day
- Women-owned businesses up 14%, or an additional 600 businesses accessing relief each day
- Rural small businesses up 12%, or an additional 1,000 businesses accessing relief each day
The latest round of PPP funding also set aside funds for the smallest businesses and those in economically distressed areas of the country. This included $15 billion for first-time PPP draws for businesses under 10 employees, $25 billion for second draws for the same group, and $15 billion for community financial institutions that primarily fund minority and women-owned businesses.
The SBA further reported the following additional positive impacts on the smallest businesses:
- PPP loans to small businesses with fewer than 10 employees are up 60% now over the same time last year.
- 94% of PPP loans in the current round have gone to businesses with fewer that 20 employees accounting for 51% of loan volume.
While these numbers are encouraging, many areas of the country remain under shutdown orders or other restrictions on businesses, especially retailers and restaurants. While the vaccine distribution programs are helping, there are still surges of Covid-19 as well as a large percentage of the population saying they will not get vaccinated. It is clear more aid is needed for small business.
What should come next after the latest PPP deadline?
A study by Facebook of over 11,000 small business owners showed that as of December 31, 2020, 25% of small businesses were closed either temporarily or permanently. Out of approximately 24 million small businesses in America, that translates to 6 million businesses never reopening or else suffering tremendous losses. And, according to the U.S. Chamber of Commerce’s quarterly index, in the first Quarter of 2021, a whopping 75% of small businesses remained concerned about the negative impact of Covid on their business despite the new vaccines. While there is optimism over the vaccines, a majority of the businesses in the Chamber index believe it will be six months to a year before business returns to normal.
So, what should happen next to help America’s small businesses? Here are five ideas:
- Extend PPP until December 31, 2021, fund it with at least $75 billion, and cap the loans at $50,000. This is the quickest and simplest way to help 15 million small businesses. The EAA and ARP made significant PPP improvements that demonstrably helped minority-, women-, and veteran-owned businesses, and those in low-income communities. Why stop now? PPP can continue to be improved over the course of 2021 to put a lower cap on loans, make second draws easier to obtain, and ease forgiveness rules—all for only the smallest and most vulnerable small businesses.
- Create and fund new small business relief mechanisms. In addition to new PPP funds, recent legislation provided added relief to the hardest hit sectors like restaurants and live entertainment venues. While these new grant programs are slow to come online, eventually the money will start to flow and provide much needed relief. But, the government shouldn’t stop there. New programs for different sectors, geographic regions, and demographic groups should be developed and come online in 2021 and 2022. PPP showed that the government can be creative and work quickly in a bipartisan way when the stakes are high—and they still are.
- Reduce the regulatory and tax burdens on small business. Filing quarterly taxes alone costs business owners time and money. Not to mention the size of the tax burden disproportionately impacts small businesses. Large companies have many avenues for tax avoidance that small businesses do not, and they should not be lumped into the same tax policy. Now is the perfect opportunity to make changes to make it easier on small businesses to keep the revenue they have instead of sending it back to the government when they need it most. Extending a tax holiday for a few quarters would be a great and simple way to start.
- Empower fintechs and other private lenders to provide small business funding. According to the Innovative Lending Platform Association, online lenders stepped in to provide approximately 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 companies are also coming online to meet the needs of small business funding. San Francisco-based startup SMBX, for example, offers an online platform for small businesses to issue bonds to their customers, communities, and financial institutions. These companies should be incentivized to keep finding ways to provide new sources of capital for small businesses.
- The focus on minority-, veteran-, women-owned and rural businesses should continue. As with the health impacts of Covid, the economic impact on minority- and women-owned businesses was disproportionately felt. Eight-six percent of minority respondents in the Chamber index reported concern for the future of their business due to Covid, 10% higher than small business in general. And, more women-owned businesses were shuttered than male-owned, in part due to caregiving responsibilities according to the Facebook poll. 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 exposed the many burdens placed on small businesses and the vast gap in “know-how” and “know-who” throughout the business community. Just as minorities suffered higher rates of contracting and dying from Covid, so too did minority-owned businesses receive PPP loans at a lower rate. And, as the stock market reached record highs with some public companies achieving record earnings, conversely, many small business owners in America went into tremendous debt and saw a lifetime of work disappear overnight.
Covid brought into focus the importance of our small business community like nothing has before it. While every politician speaking of small business uses 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 into helpful policy for those small businesses. Despite what we all hope, the Covid pandemic is far from over, and for many small businesses the impact will be felt for years to come. If the U.S. government truly believes small businesses are so critical to our economy, it must stay focused on the health of our small businesses and extend and replenish PPP.
About the Author
Neil Hare is an attorney with the law firm McCarthy Wilson LLP, and President of Global Vision Communications, where he specializes in small business policy, advocacy, and communications campaigns; follow him on Twitter @nehare and on LinkedIn. See more of Neil’s articles and full bio on AllBusiness.com.
This article was originally published on AllBusiness.com.