Five Takeaways From the Small-Business Relief Mess

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(Bloomberg Businessweek) -- Many of the U.S.’s 30 million small businesses haven’t been able to get the relief they need since the coronavirus pandemic prompted shutdowns. If the crisis continues, roughly 3.5 million could close permanently over the next two months, and almost 7.5 million could close for good over the next five months, according to a report released on April 9 by Main Street America, a network comprising approximately 300,000 small businesses. The report estimates 35.7 million people employed by those businesses are at risk of losing their jobs.

The two primary federal relief funds for small businesses—the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program—have been overwhelmed and widely criticized. Both ran out of money quickly, prompting the Small Business Administration, the agency that runs the programs, to temporarily stop accepting applications. 

A new bill signed into law on April 24 injected $320 billion into the PPP and $60 billion into the EIDL program. The SBA started accepting PPP applications again from lenders on April 27. The agency isn’t accepting applications for the EIDL program yet, according to its site. (Here’s our explainer on the PPP, which makes partially forgivable loans of up to $10 million through banks and other lenders, and the EIDL program, which makes loans of up to $2 million and grants it calls “loan advances” of up to $10,000 through the SBA.)

Some important points to bear in mind as you try to sort out how to get help for your business:

1. Expect more PPP drama and for the money to run out fast. 

An analysis of the first round of PPP funding ($349 billion, which was depleted in two weeks) showed only 15% of businesses most hurt by the pandemic got funds, Bloomberg News reports. Now glitches, vague guidance, and ongoing changes are hampering the PPP again, it reports in a separate story. Advocates are concerned “additional funding could also be exhausted in a matter of days, won’t be enough to meet demand, and might not reach the entities that need it the most.” AutoNation, Shake Shack, the Los Angeles Lakers, and Ruth's Chris Steak House have received and returned PPP money following public outcry.


2. Try a small lender rather than a national giant. 

This paper shows that the four top U.S. banks (JPMorgan Chase, Bank of America, Wells Fargo, and Citibank) “disbursed less than 3% of all PPP loans” in the first round of funding. In this new round ($320 billion), $60 billion of it is meant for small financial institutions with $50 billion or less in assets in an effort to get more money to small entities. Bloomberg Opinion columnist Joe Nocera offers this suggestion: “It seems plain to me that that in these incredibly difficult circumstances all the banks—big and small alike—are doing the best they can. But if you’re a small-business owner and feel frustrated by your giant bank, let me give you a suggestion: Try your small local bank."

3. Don’t give up on the EIDL program. 

Of the $60 billion Congress appropriated for the EIDL program, $50 billion is for loans of up to $2 million that must be paid back within 30 years, and $10 billion is for grants of up to $10,000. If you already applied, call the SBA and ask about the status of your application. Don’t expect miracles: This Seattle ice cream maker’s EIDL saga and this Easthampton, Mass., machine shop’s experience might add to your patience reserves. Newsday reports the SBA isn’t accepting new applications but is processing old ones.

4. Compare notes with other borrowers. 

Many borrowers are turning to Reddit’s small-business threads to learn how others navigated the PPP and the EIDL program. Samantha Safer, owner of Otway, a 49-seat neighborhood restaurant in Brooklyn, N.Y., that employed 16 people before the pandemic, learned that many who’ve received EIDL grant money didn’t hear from the SBA but did notice their personal credit report had been pulled shortly after the funds were deposited in their bank accounts.  (Read this Credit Karma explainer on hard and soft credit inquiries.) Safer didn’t get PPP and never heard back about her EIDL application. Webinars about the EIDL program, the PPP, and other resources from advocacy groups such as Small Business Majority and explainers from law firms abound. She never heard back about her EIDL application. Webinars about the EIDL program, the PPP, and other resources from advocacy groups such as Small Business Majority and explainers from law firms abound. 


5. Evaluate the employee retention credit. 

Minneapolis entrepreneur Danny Schwartzman, who employed about 45 people at Common Roots Café and Common Roots Catering before the pandemic, is evaluating a tax credit measure included in the Coronavirus Aid, Relief, and Economic Security Act called the employee retention credit, which may make more sense for his business than a PPP loan. It’s essentially an Internal Revenue Service tax credit of $5,000 per employee that employers with less than 100 employees can use in 2020.  (Larger businesses can also use it but get less of a break. “It won’t change, and it’s not going to run out of money. It’s a tax credit,” Schwartzman says. He estimates it could be worth roughly the same as the PPP loan he applied for and was approved for in early April but hasn’t yet received. 

“Everyone’s scenario is different,” says Schwartzman. “For me, I’m less concerned about a giant lump sum at the beginning than the ability to get the support to create something that’s viable for the medium term and not just a couple of months.” His hypothesis about why more people aren’t talking about the tax credit: It’s not an option for bigger employers with more than 100 employees. The PPP, meanwhile, feels like this “shiny thing they put in front of us that goes through banks rather than this simple thing.”

(More information about the employee retention credit is available in this Bloomberg Tax article titled “Businesses Wary of Using Virus Tax Perk Absent More IRS Guidance” and  this explainer from law firm Lowenstein Sandler.)

©2020 Bloomberg L.P.

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