Congress is about to unleash hundreds of billions of dollars in aid to small businesses, a long-awaited injection of relief that some employers, economists and advocates say won't be nearly enough as the economy faces a worsening winter slowdown.
Most of the $325 billion that lawmakers are proposing for small business in a new economic rescue package would go toward a new round of Paycheck Protection Program loans, which offer a lifeline to borrowers because they don't have to pay the money back if they retain their workers.
But while many struggling businesses are desperate for help as the pandemic surges, the resurrection of the program more than four months after it was shut down will only provide short-term support. The small business aid will cover up to three-and-a-half months' worth of payroll costs — well short of how long many of them expect it will take to bounce back: A Census Bureau survey showed that 46 percent of employers don't see normal operations resuming for more than six months.
"Small business savings have been exhausted, winter weather has rendered outdoor adjustments useless, and widespread vaccination is not expected until mid-2021," said Luke Pardue, an economist at payroll services firm Gusto, noting that the original infusion of aid in April ran out in two weeks before being replenished. "Eight weeks of payroll support for the businesses that are fortunate enough to get aid is simply not enough."
The incoming Biden administration is expected to make a new push for economic relief that many Democrats hope will surpass the current package. But even though small business assistance has broad bipartisan support, it's not clear that a sharply divided Congress will go for another massive rescue, especially with a vaccine on the way.
“Anyone who thinks this bill’s enough does not know what’s going on in America, does not look into the eyes of a small business owner who’s losing his business," Senate Minority Leader Chuck Schumer said Sunday, as lawmakers prepared to pass the legislation early this week.
The restart of aid has broad implications for the economic recovery, with small businesses employing nearly half the private sector workforce. On Thursday, the Labor Department said the number of Americans filing weekly applications for jobless benefits rose again to 885,000. The percentage of small businesses that have reported a decline in employees has trended upward since October, Census data show.
“There are small businesses all over the country that have basically been unable to really function, and they’re just hanging on," Federal Reserve Chair Jerome Powell said Wednesday. "It would be bad to see people losing their businesses, their life’s work in many cases, or even generations’ worth of work because they couldn’t last another few months.”
While the initial phase of PPP doled out $525 billion, it was dogged by concerns that private banks — which delivered the government-guaranteed loans — left many businesses on the sidelines, particularly those owned by minorities. Lawmakers say they attempted to better target the funds in the new legislation by limiting eligibility to smaller businesses that have had significant revenue drops in revenue — though restaurants, among the hardest hit, will not get the dedicated rescue they sought. The plan would allow businesses that received PPP funds earlier this year to apply for second loans.
Union officials have raised doubts about whether the program did enough to ensure that businesses kept paying workers. But the structure of the PPP will largely remain in place and could be more complicated than before.
Says Robert Miller, a Pittsburgh-area restaurant owner, "A second PPP will help cash flow short term, but would definitely not be enough with the amount of mitigation orders that have been levied on the hospitality industry."
The small business package that Congress assembled is a mix of loans and grants that would once again be handled by the Small Business Administration in cooperation with the Treasury Department.
The $284 billion in new PPP loans accounts for the bulk of new small business funding in the bill. When initial PPP lending stopped in August after distributing about half a trillion dollars, the program had nearly $134 billion left over.
The new version will allow businesses to use the funds on a longer list of expenses, and the loans will be available to a wider array of nonprofit groups and local media companies.
But stretching the money out for the second loans will be helped by lawmakers' decision to shrink the maximum loan size to $2 million from $10 million and restricting who can access the money in an effort to target smaller, ailing businesses. To obtain the so-called second draw loans, businesses will have to prove they suffered a 25 percent revenue loss during the pandemic.
The bill would dedicate $25 billion for second-time borrowers that have 10 or fewer employees or loans of less than $250,000 in low-income areas. Another $15 billion would be allocated for first-time borrowers that meet those criteria.
Labor advocates are concerned about whether the proceeds will trickle down to workers. Hotel and food service labor union Unite Here has been advocating for more employee-focused protections, including requiring that businesses give laid-off staff a chance to return before hiring new workers.
"We’re disappointed that Congress didn’t add safeguards to ensure that this funding actually goes where it is needed: to save small businesses and keep workers employed," Unite Here research director Marty Leary said.
A $120 billion fund to support restaurants fell by the wayside, just as the industry faces new social distancing restrictions and colder weather that threatens outdoor dining. In the new bill, Congress instead gave eateries and hotels a more generous helping of PPP funds — up to three-and-a-half months' worth of payroll per loan instead of the two-and-a-half months permitted for other industries.
Restaurant owners plan to keep pushing Congress next year for more assistance. The Independent Restaurant Coalition said the bill "falls woefully short." Sean Kennedy, the National Restaurant Association's executive vice president for public affairs, cited the dynamic in New Orleans, which he said has more restaurant supply than local demand.
"It's going to take cruise ships being back online," he said. "It's going to take business travel being back to where it was. It will require Bourbon Street revelers to fill up the town every night. That all has to take place before all of the restaurants are back online. You can say the same thing for virtually any community that relies on tourism or business travel."
American Bankers Association Executive Vice President James Ballentine said the PPP program "is the sort of eight-hour-energy drink very much needed for a number of small businesses" but that they need "long-term care" to survive.
The PPP funding in the bill will be supplemented in additional funding for other SBA loans and other grants, including $20 billion for Economic Injury Disaster Loan program grants and $15 billion in grants to arts and entertainment venues. Small business advocates had been urging Congress for months to rely less on banks to dole out loans.
"Targeting the PPP dollars to businesses with urgent needs and revenue dips will help to stretch that money farther, but many businesses, especially those unable to access the program over the summer, will not be helped," said Amanda Ballantyne, executive director of the Main Street Alliance. "That is why the grant program expansions in the bill are so necessary."
The new legislation would give the SBA 10 days to write rules for the revamped small business rescue. The deadline reflected a sense of urgency to get help to struggling employers. But the timeline — over the holidays and in the midst of a presidential transition — unnerved banks that will be responsible for issuing the PPP loans based on the SBA's guidelines.
“It’s imperative SBA provides all the rules well before accepting applications in order for a smooth transaction to occur," Consumer Bankers Association President and CEO Richard Hunt said. "Writing the rules in 10 days would invariably lead to unintended consequences.”
Advocates for a more comprehensive small business rescue say the inability of Congress to think bigger than the PPP is problematic because it will likely be harder for lawmakers to agree on additional aid next year. Congress will probably remain divided. The rollout of Covid-19 vaccines will make it easier for policymakers to err on the side of not spending more to help the economic recovery.
"From the beginning, Congress has consistently opted for a short term approach to small business relief, creating a mismatch between the scope of each round of relief and the duration of the crisis itself," said John Lettieri, president and CEO of the Economic Innovation Group. "PPP loans will likely run out months before businesses in hard-hit sectors are back to normal operations. But there may not be more relief coming once this round of PPP expires."
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