Disaster. Fiasco. Debacle. That’s how the rollout of the Paycheck Protection Plan (PPP) is widely described. PPP is the loan program aimed at helping small businesses and the self-employed, with loans that can be ‘forgiven’—in other words, turned into a grant. But frankly, it’s just a mess.
As part of the CARES Act, Congress allocated $359 billion for small business relief. PPP enables businesses to get loans of 2.5 times their average annual ‘payroll costs’ and have those loans forgiven if they spend at least 75% of those funds on ‘payroll costs’ within 8 weeks. It’s designed to get paychecks to those working in small businesses quickly. It immediately became a very, very popular program.
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The Senate wanted these funds to go through banks instead of Treasury or the SBA. This was supposed to get money to businesses faster. Instead, it created mass confusion and frustration.
“Talk to 20 business owners, and they’re all hearing something different from their banks,” said Amanda Ballantyne, Executive Director of Main Street Alliance, representing over 30,000 small businesses.
Banks each have different online processes and require different documentation to meet federal guidelines. Most banks are only accepting applications from existing customers; at least one bank limits applications only to those with business accounts, wrongly shutting out those sole proprietors with only personal accounts.
By Monday morning, Wells Fargo stopped accepting applications altogether, saying they’d reached their financial limit. Bank of America had received over $32 billion in applications. Websites crashed. Small business owners were frustrated. Sole proprietors perplexed. Everyone was angry.
That was just the first business day.
Worse: big businesses are actually able to take a big chunk of these funds supposedly set aside for small businesses and the self-employed. Hotel and restaurant businesses with fewer than 500 employees in one location also qualified for these funds—up to $10 million. Sole proprietors who do their own bookkeeping or small businesses fighting just to survive use the same applications and compete for funds with hotel or restaurant chains. Crazy.
I have yet to hear of a small business that has actually been told they’ve been approved or have received any money.
There’s some slight good news: the Treasury Department yesterday indicated they’d take these loans off the banks’ balance sheets, freeing up more funds from individual banks.
But that doesn’t solve the problem of the pot running out.
Because of demand, Treasury Secretary Steven Mnuchin said he’d ask for $250 billion added to the PPP program. More money is desperately needed.
But that won’t solve the program’s inherent problems.
“It’s not clear that putting more money into this program will actually solve the crisis that millions of small business owners are facing,” said Ballantyne. “The challenges with the PPP will be persistent.”
A broader “CARES 2” package is already being discussed and the idea has bipartisan support. I hope that in that package, America will get a real “Small Business Survival” program—not just a program to protect paychecks—including:
- Grants, not just loans. Earlier proposals called for simple grants for the smallest companies—ranging from a maximum of $75,000-$100,000 for businesses with fewer than 50 employees. Let’s do something like that fast.
- Simpler procedures. Why make these small companies jump through hoops and deal with paperwork when they’re fighting for survival? Senator Josh Hawley is proposing a simpler way to get money to small businesses through payroll rebates. This wouldn’t cover those businesses without W2 payroll workers, but it could make things easier for those who do.
- Forgiveable loans for operating expenses. PPP requires at least 75% of funds to be used for ‘payroll costs.’ But many businesses have bigger operating expenses—rent, inventory, equipment leases, insurance, and more.
- Separate pots. Why have very small businesses compete with companies that have hundreds of employees?
- Faster funds. Small businesses are closing for good every day. Let’s not waste time with a bunch of unnecessary limitations for very small companies. “This is a life or death situation for millions of small business owners,” said Ballantyne.
Lawmakers would be wise to heed the advice of Neel Kashkari, who ran TARP—the recovery program from the housing crisis and who is currently the head of the Minneapolis Federal Reserve Board. “Today, in the Covid crisis,” said Kashkari in a recent Planet Money interview, “policymakers should be focused on helping as many businesses and as many workers as possible, not trying to narrowly target…who’s deserving and who’s not. If we waste time trying to make those distinctions, we’re going to be too late.”
If Congress doesn’t give small businesses and the self-employed a stronger lifeline fast, millions will go under.
Copyright Rhonda Abrams, 2020
This article originally ran in USA Today on April 8, 2020