Rush for emergency loans to help small businesses lose money
Temporary closed signage is seen at a store in the Manhattan neighborhood following the coronavirus disease (COVID-19) outbreak, in New York, U.S., March 15, 2020.
Jeena Moon | Reuters
The relief offered under the CARES (Coronavirus, Aid, Relief and Economic Security) Act is slow, piecemeal and confusing. The delays put millions of businesses at risk of closure, threatening their employees, suppliers and communities. This puts us all at risk of a deeper recession.
Last Tuesday, the Small Business Administration launched a disaster recovery portal, reiterating the promise contained in the CARES Act: the first round of aid would be delivered within three days. He has not arrived.
On Friday, the US government attempted to launch the $349 billion Paycheck Protection Program under the CARES Act. The PPP is administered through the existing banking systems of the Small Business Administration lenders. Some banks were not ready. Some are already flooded.
Bank of America confirmed to have received applications from 177,000 small businesses for a total of $32.6 billion in funding. Wells Fargo said it was at full capacity for its allocation under the program.
Meanwhile, anger over these two programs is mounting in the small business community. They don’t even know half of it. As the program unfolds, other flaws are likely to become apparent. The confusing legislation favors businesses that already have relationships with lenders and leaves out many of the most vulnerable businesses.
The smallest companies, with less than 50 employees, bore the brunt of the initial crisis, shedding 90,000 jobs in March, according to a ADP survey. These are restaurants, gyms and convenience stores. They had the least amount of cash — an average of 15 days worth, according to JPMorgan Chase Institute to research. They had to fire their employees, who are often also friends. Now they watch their life’s work crumble.
And it is likely that this aid will exclude many.
The Foundry Group has spent hundreds of collective hours this week studying these programs and communicating updates to its portfolio companies. Banks rolling out the program are unprepared and lack basic guidance from the SBA and Treasury on key details of the application process and the overall program. Treasury guidelines are often internally conflicting – for example, over whether 1,099 contractors can be counted by companies when calculating their potential loan amounts.
Companies that are backed by professional investors, with all the experience, resources and expertise that entails, are struggling to understand the options available to keep employees on the payroll as businesses absorb the blow initial closing.
Congress did the right thing to make parts of the aid programs forgivable so that the most vulnerable businesses aren’t hobbled by debt, but will the money allocated by Congress get to them in time? Or, in many cases, will you achieve them?
These companies are the lifeblood of America. And we are abandoning them almost completely to get through this crisis on their own. Help intended to help these businesses will not reach them unless we take immediate action to clarify the rules, get the technology rolling, and launch a coordinated national campaign to reach out to and support all small businesses that need help.
Here are steps the business community and the federal government could take to accelerate aid, likely without passing new legislation.
Anticipating that federal aid would roll out slowly, states, communities and foundations set up their own loan funds, often with donations, community reinvestment deed credits from local lenders, and assistance from local economic development groups. There are more than 30 so far nationally, as this one in Louisville, Kentucky, which aims to place zero-interest loans on the bank accounts of companies with fewer than 10 employees in one week. SBA funds could flow to these loan funds, which have lines of communication with their own small business communities — and can act much faster than the federal bureaucracy.
“We are disappointed with the lack of broader inclusion of community loan funds in the PPP and hope that we can find a way to be partners in reaching all Americans and businesses and nonprofits that are not not easily accessible by large institutions,” says Lisa Mensah, CEO of Opportunity Finance Network, the association of community development finance institutions, which are involved in some of the new loan funds.
Big companies that sell to small businesses and use their services are starting to scale up, paying their claims faster. Last week, a coalition of technology companies that serve the small business market – Alignable, Fundbox, Gusto, Homebase, Womply, SmallBizDaily.com, Real.Agency, Company.com and Small Business Edge – launched an initiative called #paytoday encourage large companies to pay more quickly.
Let’s encourage a national movement around this. It is our respective civic duty as individuals and businesses to do all we can to support small businesses in our communities.
Whatever inter-agency rivalry hinders the interpretation of rules and the implementation of programs must end. This is management 101. Mobilization needs a clear leader, who will be held accountable to ensure that these billion dollar programs run smoothly and transparently. President Donald Trump should immediately appoint such a leader to oversee these programs.
The PPP lending program should be immediately clarified and streamlined. That should be the first priority for the new coronavirus recovery czar.
Moreover, the program itself needs to be expanded. The goal of the program is to save jobs and provide a lifeline to businesses hardest hit by the COVID-19 economic crisis. However, the way it is structured almost completely excludes businesses such as restaurants, fitness centers, and other small businesses unable to function in our current “shelter-in-place” society. These companies closed weeks ago and have already laid off employees.
These companies cannot access key elements of the program related to loan cancellation: for example, the possibility of canceling loans based on future salary obligations is not accessible if companies have already closed and laid off people and are not able to reopen quickly enough. . These rules need to be addressed and updated to allow businesses like these to benefit from the program when they eventually get back up and running as society emerges from home.
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We need them to survive. And we need them to have the capital to rehire the workers they were forced to lay off at the start of the crisis.
For the country to recover, we need small businesses. Every small business that sinks or shrinks has ripple effects — laid off employees, unpaid rent, broken contracts — that collectively push us deeper into a recessionary hole. Small businesses are the backbone of our economy, the heart of our communities and the center of our rebuilding strategy. It is time to act to save these companies.
Seth Levine is a founding partner of Foundry Group, a $2.5 billion venture capital firm based in Boulder, Colorado. Elizabeth MacBride is the founder of Times of Entrepreneurship, a publication covering entrepreneurs beyond Silicon Valley.
TO VERIFY: Calculate how much you could get from coronavirus stimulus checks Going through Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in tassels.