What Will Congress Do For Small Businesses?
Someone should remind Congress that last week was National Small Business Week. Small businesses all over the country continue to struggle and they anticipate that difficulties will persist. Democrats and Republicans appear unlikely to agree on another relief package, which could doom more help for small businesses.
That’s unfortunate because there is a high degree of bipartisan agreement on support for small businesses — and they appear to need it.
Over the last few months, high shares of small business owners have continued to report hardship. Because of persistently low revenues across several sectors and geographies, many have exhausted their Paycheck Protection Program (PPP) loans. Yet they still face the possibility of closing down by the end of the year.
In June, according to a Small Business Majority survey, 46 percent of respondents said they were likely to lay off employees once their PPP funds were used up. By the end of July, three-quarters of respondents in a National Federation of Independent Business survey had used their entire PPP loan. Half said they anticipated needing additional financial support.
The most recent data on small business fortunes comes from the Census Bureau’s Small Business Pulse Survey, which ran from April through June and was restarted in August. As of the third week of September, 43 percent of small businesses said they were experiencing a “moderate negative effect” because of the pandemic. That share has held fairly steady since the beginning of June. The most recent September results also find 33 percent experiencing a “large negative effect.” That’s down from 38 percent at the end of June. Yet this means three-quarters of small businesses are, six months into the crisis, still experiencing negative effects.
Encouragingly, 18 percent said they are experiencing “little or no effect,” up from 13 percent from two months prior. There is other good news, too. At the end of June, 38 percent of small businesses said they had experienced “no change” in revenues over the prior week, versus 43 percent saying revenues had fallen. By mid-September, the “no change” share had jumped to 60 percent and the “decreased” share had fallen to 31 percent.
There’s also not so great news in the Census survey. Every weekly reading since the beginning of August shows a higher share, compared to June, of small business owners saying they expect resumption of “normal” operations to take at least six months. Nearly half (45 percent) expressed this expectation in the third week of September. That’s higher than any survey readings from April through June. Small business owners have grown more pessimistic as the crisis has dragged on.
Thankfully, Congress has ideas. There are at least 10 bills in the House and Senate (in some cases both) that propose to make further changes to PPP and the Economic Injury Disaster Loan (EIDL) program — or create entirely new lines of assistance. Congress already acted in early July to extend the covered period for PPP loans and lower the minimum amount required to be spent on payroll. The new legislative proposals, many of which enjoy bipartisan support, fall into five broad categories of assistance.
- Modifications to PPP
According to the Small Business Pulse Survey, nearly three-quarters of small businesses say they have received assistance through PPP loans. Relying on this program for continued support makes intuitive sense.
Ideas include allowing companies a “second draw,” set-asides for the smallest businesses and community lenders, expanding the range of legitimate expenses, and simplification of the loan forgiveness process for those who received loans of less than $150,000. On the Republican side, Sens. Marco Rubio (FL) and Susan Collins (ME) have introduced the Continuing Small Business Recovery and Paycheck Protection Program Act, which includes these ideas. Three Democratic senators — Ben Cardin (MD), Chris Coons (DE), and Jeanne Shaheen (NH) — also have a bill to establish new lending for those who will have used up their initial PPP loan.
- Modifications to EIDL
Just over one-fifth of small businesses, according to the Census survey, have received assistance through the EIDL program. A bipartisan bill in the Senate, the EIDL for Small Businesses Act, would put more money into these loans and prohibit the Small Business Administration from setting a loan cap below $2 million. (The SBA had set the EIDL cap at $150,000.)
- Modifications to the Employee Retention Tax Credit
In the CARES Act, Congress created the refundable ERTC to reduce employers’ payroll tax liabilities in 2020. By the end of August, less than half a percent of small businesses had utilized this form of assistance because Congress prevented businesses from using both PPP and the ERTC. The Jumpstarting our Businesses’ Success (JOBS) Credit Act would permit employers to utilize both — and it would increase the size of the credit while expanding eligibility.
There are other tax proposals afoot: The bipartisan IGNITE American Innovation Act would allow startups to monetize net operating losses. Another bill would permit the tax deductibility of business expenses that were paid with PPP funds; the IRS presently prohibits this, and many businesses advocates have called for this change.
- New Funding Support
Several proposals would allocate new federal funding for additional small business support. Sens. Rubio and Collins propose expanding the SBA’s 7(a) loan guarantees in new Long-term Recovery Sector Loans. The bipartisan RESTART Act would also establish new federally guaranteed loans over long periods of time. Some bills would put more money into community development financial institutions and the Minority Business Development Agency. (The Minority Business Resiliency Act would codify the MBDA and make it officially permanent.)
Most intriguingly, the bipartisan RELIEF for Main Street Act would put $50 billion into local relief programs for small businesses. These programs, both publicly and privately funded, have popped up around the country, from the Birmingham Strong Fund to the Indianapolis Chamber’s rapid response loans. They have been critically important for local economies.
The PPP isn’t perfect, although it has had some positive effects, including employment retention. It’s worrying that so many small businesses continue to see a strong possibility of closing in the next few months. Our only, and least bad, immediate option may simply be to shovel more money to them, with longer timelines, through the PPP and other channels.
Dane Stangler is a fellow at the Bipartisan Policy Center and senior advisor at the Global Entrepreneurship Network.