December 8, 2020
By Anne Zimmerman, Opinion Contributor
Last week, a bipartisan group of senators announced a $908 billion stimulus plan, including $288 billion for small businesses, that kicked off another round of wrangling over much-needed economic relief after months of inaction. The plan’s fate is uncertain, but what is clear is lawmakers must ensure that the next small-business relief package doesn’t repeat the mistakes of the last one.
Though it delivered much needed aid to some small businesses, the Paycheck Protection Program (PPP) was flawed from the start — marked by overly complicated rules, unclear guidance and preferential treatment for big businesses with access to other funds. The Washington Post obtained data last week showing more than half of the $522 billion in PPP funds went to just 5 percent of recipients.
With Main Street small-business owners clamoring for additional relief as COVID-19 surges, we must learn from the mistakes that left far too many vulnerable small businesses out in the cold. If we don’t, the consequences could be dire. A November Small Business for America’s Future national survey found that 39 percent of small-business owners say they won’t make it past the end of the year without financial assistance.
If lawmakers don’t take the steps below, small businesses barely hanging on won’t survive and faltering consumer demand could push even more to fail — taking jobs with them and weakening our national economic recovery.
- First, we need to get no-strings-attached grants—not loans—into the hands of small businesses with 20 or fewer employees, including sole-proprietors. These are the mom-and-pop shops that give character to our Main Streets, drive economic activity in our communities and employ about half of America’s workers. Congress should channel these grants through nonprofits or the Department of the Treasury to ensure our most vulnerable small businesses do not get left behind this time.
- Second, PPP loans were devised to help businesses keep their employees on the payroll and pay rent and utilities for a specific length of time; the funds could not be used to replace spoiled inventory, perform critical marketing or even cover expenses related to protecting employees and customers from the virus. That was a mistake. Today we know that prescribed time limits and lack of flexibility for fund usage hamper a small business’s chances of survival. Locally owned retail shops face myriad financial pressures and are losing out to giant online corporations. The hospitality industry has been crushed. Small businesses shouldn’t have their hands tied on how or when to use a PPP loan to survive.
- Third, we need to fix the delivery of PPP loans so they get to where they are most needed. The original round of disbursements mostly went through banks, many of which prioritized businesses with existing relationships rather than those most in need. In fact, the fee structure may have incentivized banks to focus on larger corporations. Many of the smallest, most vulnerable businesses — especially minority-owned businesses and the self-employed — that didn’t need large loans couldn’t get a bank to work with them or had their applications denied because of documentation issues. To address the perverse incentive to focus on larger loans, a new PPP should require lenders to document that they worked with all businesses asking for help on a first-come, first-served basis. Compensation to lenders could include a guaranteed, sufficient minimum fee for each loan they make.
- Fourth, all current PPP loans of $150,000 or less should be automatically forgiven. As it stands, businesses can apply for loan forgiveness if they utilize the funding as directed by Congress. But a report from the Government Accountability Office found that “applying for loan forgiveness is more time consuming than applying for the PPP loan itself.” Lawmakers should make this process as easy as possible by forgiving the smallest loans with a one-page application with no documentation required.
- Fifth, Congress must pass a bill to rescind IRS Notice 2020-32 and make wages, rent and other expenses paid with PPP money tax-deductible, as intended in the CARES Act, which created the program. Small-business owners don’t need the additional insult of owing taxes on money meant to keep them afloat in a time of unprecedented crisis. This notice can only be corrected through legislation, and it must be done immediately.
- Finally, while not a PPP issue, because small businesses rely on consumer demand (and thus consumer income), lawmakers must prioritize passing another round of economic stimulus checks. Millions of workers who have run through unemployment aid provided so far by Congress are now out of options. Not only do these tax paying citizens deserve assistance from their federal government during a national crisis, they also can help prop up our struggling economy and small business sector.
With these steps, Congress can begin to correct the mistakes of the original Paycheck Protection Program while enhancing consumer demand. Small businesses have experienced one of the toughest years in our lifetime. Lawmakers must close 2020 by making every possible effort to position small businesses, and our economy, for a strong recovery.
Zimmerman is co-chair of Small Business for America’s Future and a small business CPA with offices in Cincinnati and Cleveland.