S.O.S. for small business

The coronavirus pandemic has sent the country’s economy into a free fall. A record 17 million Americans have applied for unemployment assistance in the past three weeks. In Arizona, where the Department of Economic Security at times is getting 70 calls a second for help(!), that number is 250,000.

There have been two big federal government initiatives designed to get relief to small business, each of which were part of the massive CARES Act. One’s launch has been rocky, but is on the road to improvement. The other has been a debacle.

There are 30 million or so small businesses in the U.S. More than one million jobs in Arizona are connected to small business. If the administration of these programs doesn’t radically improve quickly, if they are not made much simpler for small business owners to navigate, and if Congress doesn’t appropriate additional funds to them, then it will be too late. The unemployment rolls will continue to grow and the cake will be baked for a prolonged economic calamity.

One of the initiatives is the $350 billion Paycheck Protection Program (PPP), the rules for which were promulgated by the Treasury Department and the Small Business Administration. Funds are routed through banks and other lenders, including fintech firms.

The other initiative is an expanded Economic Injury Disaster Loan (EIDL) program, a Small Business Administration program. Under the CARES Act iteration, businesses can receive up to $10,000 in an emergency grant while their loan is in process.

Both have proven too cumbersome, too bureaucratic, and too slow to release funds to small business applicants.

EIDL has almost completely broken down. The Wall Street Journal reports that nearly four million businesses have applied for funding, seeking $383 billion, while Congress has allocated less than $17 billon.

These EIDL loans can be as long as 30 years in length in amounts up to $2 million, and at low interest rates. The average request is $250,000 or so, but now we learn that the SBA is capping loans at $15,000. And those $10,000 grants, which are supposed to be issued within three days, aren’t getting to small businesses, either. Loans are so delayed that they’re essentially ABD: After Business Death.

On the PPP front, Treasury Secretary Steve Mnuchin sold the program as a simple one, allowing banks to process loans on the same day as they’re applied for.

That’s not happening. At least not yet, anyway.

Bankers and other lenders are doing everything possible to issue these loans, which are forgivable for up to two months of operating costs for payroll, at up to $100,000 per worker. The PPP loans are capped at $10 million. Hotels and restaurants, which have suffered unlike any period in history, can tap PPP on a per-location basis. PPP can be used for rent and utilities, too, but 75% must be for payroll in order to be forgivable.

Major improvements to both programs are needed immediately.

First, there should be a concerted effort to streamline the entire process for both programs, allowing for a simple attestation from the business, and the easy, risk-free ability for lenders to disburse funds as long as there is no obvious fraud. If the federal government expects the country’s banking system to be the disbursement mechanism for these funds, then banks need to be able to do their job with as little red tape as possible.

Second, speed and ease are everything here. It’s great that 880,000 loans totaling more than $215 billion have already been approved, but the funds need to get out ASAP. That loan applications need to be manually entered into SBA’s E-Tran loan portal and that each one can take 25-75 minutes is evidence of major room for improvement. Third, for borrowers who don’t have a lending relationship with their bank, Congress should find alternative options. If the Treasury can issue direct cash assistance to American households, couldn’t it do the same thing for small businesses? If not Treasury, then state departments of revenue could serve as conduits. Both have the needed information to move money and prevent fraud.

Fourth, Congress should appropriate more funds until all businesses who have been hurt get the relief they need. We don’t dole out unemployment insurance based on the order of application until the funds run out, and we shouldn’t do it with small business support.

Thirty percent of the U.S. economy is being forced to hibernate to keep the American people safe. The PPP & EIDL programs have the important goal of keeping employees connected to employers, while better positioning businesses to gear up when things thaw out and businesses can reopen. These programs can keep people off of the exploding unemployment rolls. But without major reforms now, the economic pain will become intractable.

Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry.