Senate Small Business Chair Marco Rubio, a lead architect of the Paycheck Protection Program, said the next phase of assistance will be “very targeted” to ensure the businesses that need the most help can “survive and restart.” | Al Drago/Pool via AP
Washington’s massive small business rescue is ending after delivering more than half a trillion dollars to millions of employers. Now, everyone from key lawmakers to the Federal Reserve says it may not be enough.
That’s spurring a debate in Washington over how to provide a new lifeline to the beleaguered businesses.
While there is still $130 billion left unspent in the so-called Paycheck Protection Program, lobbyists say that’s because there were onerous restrictions — chiefly that businesses are prohibited from borrowing a second time, so if they’re out of money, they’re out of luck. Others say that many potential borrowers were largely left out of the process, including minority employers, who often don’t have relationships with bankers.
Still others are looking for a longer-term solution: There is emerging bipartisan support for new government-backed lending that would last much longer than lawmakers first envisioned with the Paycheck Protection Program, which was designed to delay mass layoffs in the early days of the pandemic.
“We’re still in a crisis,” said Holly Wade, director of research and policy analysis for the National Federation of Independent Business, which represents small businesses. “Until we have better therapies and a vaccine, we’re not going to see a full recovery by any stretch.”
That concern is shared by the Federal Reserve, which warned Congress last week that small businesses may need more help even as the economy reopens amid “alarming” circumstances.
How to further support small business is shaping up as one of the key questions Congress faces as it nears negotiations on what is expected to be another huge economic relief package in the coming weeks.
The Small Business Administration will stop approving the government-backed loans after June 30, and a growing number of lenders have already quit taking applications as they try to clear their final queues. And lawmakers have paid more attention in recent weeks to how to make it easier for businesses to convert the loans into grants — a key selling point for employers to take the loans and maintain payroll.
But even critics of the way the PPP has been implemented say more small business aid will be needed and that the program may once again be the means by which Congress delivers it. Still, they’re preparing to push for greater restrictions on who can benefit amid concerns that too much of the money went to businesses that didn’t need it.
“That may exactly be the vehicle,” Sen. Ron Johnson (R-Wis.) said in an interview. “But we can’t just re-up it. … We really do need to qualify these things and target them far better than we did initially.”
Early data on the condition of small businesses paints a stark picture.
According to an analysis published by the National Bureau of Economic Research, the number of working business owners — including small business owners — fell by 22 percent from February to April, in the largest drop on record. Restaurants, hotels, construction and transportation companies faced large declines. The damage was even worse for African American employers, which experienced a 41 percent drop, and Latinx businesses, which fell 32 percent.
The Fed told Congress in a June 12 report that a wide variety of data reveal “an alarming picture of small business health during the Covid-19 crisis.” While the PPP’s application rate suggests it has been “extremely valuable and timely,” the Fed said “some industries may face an ongoing need after the program expires.”
Appetite for the aid is irrefutable. Businesses exhausted the program’s initial $350 billion in funding and even more rushed to apply when Congress approved another $320 billion.
But for the last several weeks, the volume of loan approvals has shown little movement. Business groups and lenders attribute it to the program mostly meeting demand under its current rules. The requirements for the loans have not been workable for many businesses, in particular limits on how much they can spend on non-payroll expenses such as rent. It took Congress and the Trump administration nearly two months after the launch of the program to ease those rules after an outcry.
Other factors have also been at play. Businesses without existing banking relationships were initially at a disadvantage in acquiring the loans, and there have been persistent worries about the complicated process for converting the loans into grants. And after it was revealed that big companies such as Shake Shack took the aid, the Trump administration discouraged applicants who already had ample financial resources. Treasury Secretary Steven Mnuchin said last week that businesses had returned about $12 billion in loans.
“What we’ve realized are businesses with less than 10 employees are still on the sidelines,” SBA Administrator Jovita Carranza said on Fox Business Thursday. “One, because they were apprehensive. Secondly, because some of the documentation was a little cumbersome. But in coordination with Treasury we have streamlined the application. We’ve streamlined the forgiveness application.”
Advocates say that the unused $130 billion should not be seen as an indicator that businesses don’t need more federal assistance.
Bipartisan support is growing to let businesses apply for second Paycheck Protection Program loans, recognizing that the restaurant and hospitality industries will struggle to bounce back even as social distancing measures are eased.
Restaurants have been particularly hard hit, with about 3 percent having already closed permanently and the full tally expected to be in the tens of thousands, according to the National Restaurant Association.
Sens. Susan Collins (R-Maine) and Joni Ernst (R-Iowa) are among those pushing to let businesses take a second pass at the PPP. Sens. Ben Cardin (D-Md.), Chris Coons (D-Del.) and Jeanne Shaheen (D-N.H.) have a bill that would let businesses with 100 or fewer employees apply for another loan if they demonstrate a 50 percent revenue loss because of the pandemic. House Democrats introduced a companion to the Senate bill.
“Now is when restaurants are at their most vulnerable,” said Sean Kennedy, executive vice president of public affairs at the National Restaurant Association.
This week Senate Small Business Chair Marco Rubio (R-Fla), a lead architect of the Paycheck Protection Program, said the next phase of assistance will be “very targeted” to ensure the businesses that need the most help can “survive and restart.” Rubio has devoted attention to data indicating that black-owned and Hispanic-owned businesses have been more likely to go under.
“These disparities can’t stand,” he said. “We have to confront them because what we cannot afford as a nation … is an uneven recovery, a recovery that leaves behind people in many cases along the lines of ethnicity and race.”
Last week, Mnuchin also left open the door to supporting a continuation of the Paycheck Protection Program. If it’s revived, he and Johnson are among those pressing for restrictions to ensure federal funds don’t go to businesses that don’t need assistance. Mnuchin said restaurants and hotels are among those that do need more help and that “we’re very seriously going to look at” allowing businesses to apply for second loans if there is bipartisan support.
Rubio’s House counterpart, House Small Business Chair Nydia Velazquez (D-N.Y.), is “actively negotiating legislation” to extend PPP loan authority, a committee spokesperson said. She’s focused on ensuring funds are reaching underserved small businesses and pushing to require data reporting on loan recipients.
Lawmakers are weighing even broader expansions of the small business safety net.
One early idea proposed by Sens. Michael Bennet (D-Colo.) and Todd Young (R-Ind.) would widen the availability of government-backed loans to firms with up to 5,000 employees — up from 500 under the Paycheck Protection Program. Their bill would offer businesses funding to cover expenses for six months. A share of the loan could be forgiven based on revenue losses in 2020 and the rest could be repaid over seven years.
John Lettieri, president and CEO of the Economic Innovation Group, is among those urging Congress to think bigger than just sticking to the current construct of the program, which lawmakers first envisioned as a stop-gap. He argues that Congress should be providing a longer-term option aimed at ensuring the viability of businesses rather than just payroll.
“We’ve succeeded in winning the crisis in the immediate sense but now risk losing the recovery if we don’t do more,” he said.