The Pulse

Latest federal aid package falls short in helping small businesses

By: - April 23, 2020 7:30 pm
Image: AdobeStock

New legislation also missed the opportunity to provide state and local governments with much-needed aid

The latest federal package to address the ripple effects of COVID-19 in our communities won’t do the work necessary to ensure people can put food on the table and stay in their homes, or that state and local governments will have the resources to respond to community needs.

Our North Carolina Congressional delegation should return to work immediately on a bolder, more comprehensive package that allows our state to fully recover from the public health and economic challenges we are facing.

The latest legislation narrowly focuses on increasing investments in small business programs established under the CARES Act and boosting the capacity for testing. All of that is important, but it’s already clear that we need a more effective way to support all businesses and people experiencing financial harm.

As has been well-documented in the national media, Black-owned businesses face greater barriers in accessing the existing small business supports because they are too often unable to access bank loans. Immigrant-owned businesses are also facing barriers to access, despite efforts to provide information about supports in multiple languages, because of similar issues in accessing financial institutions.

Many small businesses, which often have the least financial cushion, were pushed to the back of the line and didn’t receive aid from the CARES Act. The most recent bill uses the same broken infrastructure, so there’s little reason to expect that this time will be any different.

To make matters worse, many large businesses can tap into the Paycheck Protection Program.  Many financial institutions have put wealthier business customers at the front of the line, which has diverted funds from the smaller local shops that are hit hardest by stay-at-home orders. This flaw in the design was a major reason the first installment of funds was depleted so quickly, and this flaw isn’t addressed by the most recent bill.

Small business organizations are weighing in with concerns about the proposal on the table for its continued flaws, which threaten to exclude businesses owned by people of color and truly small businesses.

Small Business Majority writes:

“Our recent polling found a vast 9 in 10 small businesses have been harmed by the spread of COVID-19, but we know only a small fraction of those have received the help they were promised. While providing more funds to these assistance programs is necessary, we’ve already seen that they do not provide the quick relief that would help small businesses now and in the future. Equally troubling, this legislation fails to address a critical carve-out that allowed publicly traded companies, large restaurant groups, and hedge funds to apply for and deplete the PPP fund. Meanwhile, true small business owners were left behind, and now they are fearful that help may never arrive.”

The Main Street Alliance writes:

“For small business owners facing increasingly dire circumstances, additional funding for the existing Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) is necessary but not nearly sufficient. The serious design flaws of the PPP will not be solved by throwing more money at these programs. Even the new inclusion of Community Development Financial Institutions and other dedicated funding for smaller lending institutions to meet the needs of minority-owned, unbanked, and rural businesses around the country will not go far enough to secure our small business economy.”

Many changes are necessary to make this program more effective:

  • adjusting the program to meet a longer recovery time period;
  • expanding the percentage of the loan that is eligible for non-payroll expenses;
  • expanding the list of eligible expenses, including allowing the use for capital costs, as owners adapt their businesses recovery;
  • monitoring and addressing equity in loan distribution by all lending institutions;
  • adding a grant program for businesses with fewer than 50 employees.

As these calls from the small business community make clear, Congress hasn’t yet built a tool that will reach all the main street employers that our communities rely on. Businesses owned by people of color and immigrants are often undercapitalized and operate on thinner margins, so now is the time to devote more state and federal resources to supporting them in an hour of desperate need.

Even with the improvements that allow Community Development Finance Institutions to administer the next round of small business supports and that send dollars to business-support organizations specializing in work with minority-owned and women-owned businesses, longstanding obstacles faced by many business owners of color have not been removed from the design of the loan program.

There are other avenues to protect small businesses and their employees in this time of crisis, and these mechanisms would reach more people and help more communities. For example, as the Economic Policy Institute notes: A paycheck guarantee program would be far simpler to administer and would more effectively stabilize employment and business in this moment.

As the state General Assembly appears to be stepping up to recognize the need for support to small businesses, legislators could ensure that state-level support and the public dollars being sent to the Golden Leaf Foundation fill in the gaps rather than layer on top of the federal program.

They can also put in place priorities for businesses that are underbanked, are on the front lines of the coronavirus response, or are affected by stay-at-home orders, like child-care centers, as well as those businesses that are historically underutilized and blocked from accessing capital and contracts.

Increasing funding for a recently established emergency lending program created in North Carolina would help to extend rescue capital to more businesses. Another needed step is additional funding for state agencies and nonprofits that help small business owners trying to navigate through this crisis. Even in good times, it’s challenging to inform business owners about the state and federal programs available to support them, and the challenge is particularly acute in communities of color and many rural parts of our state.

We should also start planning now for ways to support small businesses in getting back up and running once the worst of the COVID-19 outbreak has passed. Here again, sources of technical assistance and capital will be needed for small businesses that burn through their reserves during this crisis or they won’t be able to ramp up again when the economy begins to improve. While it’s unlikely that full economic activity will return anytime soon, the state legislature needs to get a head start on how to fund a full recovery.

Alexandra Sirota is the Director of the N.C. Budget & Tax Center.

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