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Last weekend, President Trump signed the new pandemic bill. In addition to the long-awaited stimulus checks for Americans, it promises a dose of relief for thousands of small businesses struggling to survive another outbreak of COVID-19. In 2020, my company helped over 4,000 small businesses obtain financing through the first rounds of the Paycheque Protection Program (P3).
While many of the changes in this bill will benefit businesses, overall the new cycle will still be far from enough for too many small businesses. (My business could benefit from increased business if the policy changes advocated in this article are adopted.)
In April, I wrote a letter to Congress outlining how best to use emergency funding to support small businesses over the coming year. In the weeks and months that followed, my team saw first-hand how congressional legislation was insufficient for the majority of businesses.
In the end, this round of stimulus funds doesn’t appear to be much different. The improvements are too small and too late. On top of that, the US banking system is simply not designed or incentivized to serve small businesses, and PPP makes this clear.
The burden on business owners to navigate P3 is overwhelming. The burden on lawmakers should not be just to provide money; it should also be about making funds truly accessible. Look at the stimulus checks for individual citizens. The final amount they will receive at the start of 2021 is still evolving, but the process is simple and straightforward: If you qualify on the basis of tax information, you automatically receive money.
Why is this not the case for small businesses?
Instead, overworked business ownerswith median cash buffers of less than a month– are forced to make Herculean efforts to even ask for relief or forgiveness. A September Government Accountability Office study found that pardon applications can take up to 15 hours for small and medium business (SME) owners to complete and more than three days for lenders to review.
These companies barely have the resources to keep operating, let alone spend days on a daunting application process. In a December survey of small businesses, Nav found that smaller businesses found application documents to be “most frustrating”Part of the PPP. Compare that to large, mid-sized companies who were more frustrated with not getting the right terms or amount.
The changes this time around – like a simplified pardon application for those who got less than $ 150,000 previously – are important, but not enough. Small businesses should automatically be able to benefit from assistance on the basis of tax information. This way we can prevent thousands of businesses from disappearing just because they can’t handle the paperwork.
On the other hand, there is a glaring disconnect between those who design the PPP process and the companies who try to profit from it. Watching lawmakers on both sides of the aisle craft this bill has highlighted a fundamental lack of understanding of the operations and needs of small businesses.
First, the definition of small business is wrong. About 98% of businesses in the United States employ less than 100 people. The bill’s definition of a small business, however, is less than 300 employees for second-time PPP borrowers and less than 500 for first-time borrowers. Companies with more than 100 employees also need support, but such a broad definition increases the risk that the most vulnerable will be excluded.
This also underlines that the legislation does not take into account the fact that SMEs are not equalized. A restaurant with two dozen employees to pay may need to spend their money quite differently than a local gym owner who needs to upgrade facilities and equipment to stay afloat. Payroll is essential for some, but not for all.
Fortunately, there is a bit more flexibility this time around in how companies can use their funds – but the program still paints SMEs with too wide a brush. This disconnection is unreasonable. Almost all businesses in the United States are SMEs, which represent 1.5 million jobs per year and drive about 44% of American economic activity. Our systems and legislators should make decisions reflecting these facts.
Finally, the system is not put in place so that banks give priority to small businesses. During the early cycles of P3, my team helped several thousand small business owners try to access loans. Through this process, we saw the banks prioritize customers with whom they already had loans, then their larger accounts, and perhaps SMEs. Ultimately, SMEs were not a priority. Our recent survey supported that. Many SMEs assumed they should go to the banks first, and they did. But among those who are considering reapplying, many have said they would go with online or alternative lenders first.
On the other hand, the banks are also tired. Their processes are not configured for PPP. With the exception of the larger chains, most banks are struggling to keep up with demand. Lender associations warned of lender fatigue for the request and forgiveness process months ago. From a business perspective, it is a distraction from the core activities and goals of banks, which keep them profitable. The incentives are not aligned and, at the end of the day, the effort to participate in PPP and help the smallest of small businesses is just not worth it for many traditional banks.
Ultimately, this new round of stimulus is welcome, necessary and an improvement. But it also highlighted the size of the small business banking deficit. During the last PPP it was sad to see thousands of hard-working small business owners turning to banks for help first, only to end up with a system that was not put in place. to help them. Too much, in the end, did not get the money they needed. Roughly one in five small businesses have closed-more … than 160,000 of them between April and September only. Many more will.
Fixing the PPP will not be easy. But SMEs are the economic foundation of our country and are an integral part of our local communities. We need to collectively design a system that prioritizes, welcomes and truly understands small businesses.
Greg Ott is CEO of Are not.
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