Rosanna Torres

If small businesses are the backbone of the economy, should Congress do more?

As soon as the third federal coronavirus response package was signed into law, the clock started ticking for small businesses already overwhelmed by business-altering decisions. Business owners, sole proprietors and leaders of nonprofit organizations rushed to ensure their organizations would not be left out of any available help.  But, as it turns out now, the scale tipped towards those with most leverage and influence on the Hill.  While lobbyists in Washington DC have been relentlessly pushing House and Senate leaders for special carve outs and protections for their members, those who need the most help, organizations with few employees and little resources to afford legal advice – especially at this time – are often the last in line.  It’s possible the pot of money will run out before they get to it.  Here’s why.

On March 27, 2020 President Trump signed into law the CARES Act.  The first Title of the law appropriated emergency funding to keep the economy running, particularly the 30.2 million small businesses in the U.S.  As such, the law directed the Small Business Administration to establish a new program, the Paycheck Protection Program (PPP), for qualifying small businesses, and expand traditional eligibility criteria to sole proprietors, independent contractors, self- employed individuals, 501c3 nonprofit organizations, veterans’ organizations, tribal businesses, and certain restaurant and hotel franchises with less than 500 employees.  The program extends up to $10 million in loans for qualifying applicants. If certain conditions are met, the loans will be forgiven and transform as an influx to cash flow.

The amount of initial funding totaled $349 billion. As of yesterday, April 6, the SBA had already processed 124,000 loans totaling $36 billion, from over 2,300 lenders.  This quick uptake suggests more funding will be required. Even conservative estimates put the total of necessary relief for three to four months for these entities at more than $1 trillion dollars:

“We estimate the cost of replacing 80 percent of the revenue for three months of private-sector firms with fewer than 500 employees, excluding the manufacturing, health, education, and finance industries, to be $1.2 trillion.”

– R. Glenn Hubbard, Michael R. Strain, American Enterprise Institute

The intentions of the Paycheck Protection Program were noble, especially considering it expanded eligibility to sectors of the economy that are typically forgotten, but if Congress is serious about protecting small businesses, it needs to do much more.

The chairwoman of the House Small Business Committee, eligible applicants, and banks, have lamented how things have played out in reality. The whole process was rushed and federal guidelines were delayed.  On Friday, April 3, the SBA posted an interim rule regarding the application of the rules for the new program, the same day lenders could begin to accept and process loan applications.  Further, the expanded eligibility criteria beyond the applicants the SBA typically responds to had folks sprinting to the finish line.  Since applications are being processed on a first-come, first-serve basis, the risk of making errors, or worse yet, leaving out the most vulnerable out to dry are extremely high.

House Speaker Nancy Pelosi had previously called for expanded relief in the next response package and this week, Senate Majority Leader Mitch McConnell announced the Senate could vote as early as April 9 to replenish funds for the PPP program, but the House and Senate aren’t expected back in session before the end of spring recess, or April 20.  Judging from a recent tweet by President Trump, it is unlikely the White House will push against on additional funds.

In any case, small businesses “are the backbone of our economy”, as we’ve heard countless politicians repeat.  Congress needs to cater to their unforeseen needs.

We’ll keep a close eye on any developments.