So, most of us around the country are entering week four of state enforced shutdowns. As such, we have a lot of time to think, ponder what-ifs and play armchair quarterback on recent events and decisions. Well my thoughts have been focused on finance as I am a bookkeeper who works with small businesses. First, I will say that I am happy the government is taking measures to help small businesses, but frankly they are obligated to help them. Our country is built on small business! Over 99% of businesses in the U.S. are small businesses.
For health safety concerns, the government has forced small business owners to close their doors to the public to “slow the spread / flatten the curve” of Covid-19, this has shown to be scientifically the right decision to help slow the spread of the virus. However, the government has mandated successful, hardworking individuals to literally stop working for the greater good and not because they have not paid their taxes, committed crimes, or filed for bankruptcy, but to help fellow Americans. I totally agree with helping your fellow American, but there must be a more well thought out financial support program behind this decision.
The financial support was the $350 billion-dollar PPP program of forgivable loans via the SBA to help small businesses to keep payroll for the next 8 weeks. The concept of the program is great, but unfortunately the implementation of this program has not helped the more “common small businesses.”
Here is some of the problems I have witnessed:
1). Banks Making Mistakes: Business owners were forced to go to the bank they have a business banking relationship with, most banks especially the large banks are not taking on new clients for this loan. However, many small to mid-size banks filed the paperwork incorrectly or not at all, which resulted in no loans for clients.
2). Big Banks Catered to Big Clients: There was no way a common small business could talk to a banker at the larger banks about these loans. They had large conference calls, that maxed out due to the volume of interest and on the calls, and literally read from the government website, no insight and connection with the small business community. These banks are not making a lot of money off these loans, so they are not catering to anyone except their larger clients. For example, companies like Ruth Chris received $20 million, Pot Belly’s $10 million, and junior Cheesecake got $5.5 million to cover 8 weeks of pay. These loans came almost immediately, where the more common small business listened to a robot-like person via a conference call and sat through a waiting period to only hear that the bank ran out of money. They are now in a que waiting on the potential next round of funding.
3). Definition of Small Business: I would love to be a small business that requires $10 million a month to pay my employees, but that is not the common small business. In fact, 88% of small business employers have less than 20 employees. So, did a majority of those 88% get a loan? They did not.
I realize that the restaurant business was hit hard, but does it make sense for a company of that size to compete for the same funds as everyone else? Is this fund supposed to help the all neighborhood business equally? Roughly, the requirement for small business was a combination of your NAICS code and that you had <500 employees.
4). The PPP Loans had a missing component: A proof of impact to the business. Unfortunately, a large majority of small businesses applied for this loan, regardless of needing the money or not. One must prove that they kept their employees for the next 8 weeks, but what if they were going to do that anyway? What if you are a failing business and would have failed anyway? What if they intend to let those employees go after 8 weeks, because the employee turnover rate is high for that business? In my opinion, questions regarding business impact are needed going forward to make sure that those who truly need the funds receive the funds.
So, per my opening statement as, I sit here pondering and playing armchair quarterback the PPP loan is good in theory and did help many small “big” businesses. However, I think there needs to be tweaks made to the administration of the program for the next round. The government needs to ensure that the more common small businesses are able to receive the funds that they desperately need to stay afloat and benefit. I am glad that our Federal government has stepped up to help our fellow Americans, but let’s learn from the first round and put together a program that enables our great small businesses to survive this pandemic. Once we are on the other side of this pandemic we will thrive again!