COVID-19 and the impact to small business: Policy solutions to immediately support America’s job creators
On March 24, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), or “Phase 3” of the federal government’s stimulus packages aimed at keeping Americans working and businesses afloat during this pandemic. While the loan assistance provided in the package is a good first step and may help some small businesses continue to keep their employees, we are concerned that tying loan forgiveness solely to payroll may not help enough businesses from going under when their revenues have dropped to zero overnight, and that the loan process is too complicated and not fast enough to help small businesses that are making tough decisions about their futures right now.
With the market in free fall and uncertainty breeding in communities across the country, businesses on Main Street have been left to grapple on their own with how to stay afloat during these challenging times. Thousands have closed up shop, experienced dramatic losses, been forced to lay off staff en masse, and are left to wonder if they will ever reopen. Our network of more than 58,000 small businesses have painted a dire reality of what they are facing, which requires additional bold action to immediately bolster our small business community.
More must be done to ensure small business owners are able to reopen and get Americans back to work at the end of this crisis. Congress has passed legislation to use small business loans to help keep more American workers paid, but not to keep small businesses open for the long-haul. What small businesses need are relief packages that include an array of resources and loans to small businesses, but most importantly, they must immediately provide significant, efficient, and unrestricted grant funds to small businesses. This is why we’re calling on Congress to stem further losses by providing $250 billion in stimulus grant relief to small businesses.
Immediate stimulus grant relief and amendments to help small businesses
We strongly urge Congress to provide $250 billion in grants for small businesses so they can keep their businesses afloat and avoid drowning in mounting debt that has resulted from this unprecedented event. Each day that passes dramatically impacts small business owners and their employees. We believe these small business grants should be made through the IRS and include the following provisions:
- Cover small businesses with between 2 to 100 employees.
- Pay up to $200,000 per loan out of a $250 billion fund, based on the size of the business.
- The business must show losses of at least 25% for one month due to the outbreak.
- Provide unrestricted funds to be used at the small businesses’ discretion.
Additionally, we encourage Congress to amend the Paycheck Protection Program established by the CARES Act in its next legislative package with the following provisions to ensure small businesses have the resources they need to keep their enterprises open:
- Expand the number of weeks of covered payroll from eight weeks to four months to align with the expanded unemployment insurance program.
- Allow small businesses to receive 175% of their payroll costs (instead of 125%) in their loan forgiveness. The usage of that 75% should be flexible so that small businesses can use the extra money to pay for other costs to keep their business afloat. Offset by any other grants received)
- Remove (iv) Waiver of Affiliation Rules under Section 1102. This program should prioritize truly small businesses with less than 500 employees so that larger companies and private equity firms do not dry up the program’s funds.
- Ensure true small businesses are tapping into program funds by revising language to limit program eligibility to businesses with no more than 500 employees total at all locations (instead of less than 500 employees per location as currently written).
Other critical measures to provide immediate relief to small businesses
These measures will allow small businesses to pay for current obligations keeping them afloat:
- Establish a program that would pay employers to maintain paying healthcare for employees they had to lay off/furlough. Include a provision allowing furloughed employees to stay on their business-sponsored health plans during the COVID-19 emergency.
- Provide forbearance on all small business loans, including credit card payments for at least six months. The stimulus package provided loan forbearance for SBA loans, which is a great first step, but we must ensure that small businesses with other forms of debt are supported.
- Adjust repayment due dates on property taxes and commercial rent to give small businesses the flexibility they need to stay afloat.
- Pass legislation that would ensure business insurance companies cover COVID-19 revenue losses.
- Ensure small businesses that offer paid family medical and sick leave receive cash reimbursement, instead of quarterly tax credits.
- Ensure the delay of payroll tax payments and grant/loan assistance are not mutually exclusive.
- Pass a moratorium on increasing unemployment insurance (UI) rates so that small businesses do not have to pay higher premiums next year as a result of COVID-19.
Access to responsible credit
We urge state and federal officials to identify creative ways to enable responsible access to credit. This includes guaranteeing that all small business loans and grants are widely accessible and that the application process is simple and speedy.
- Ensure all SBA loans and/or grants awarded to small businesses are efficient and immediate so that small businesses are not receiving loans months after an application is submitted.
- Dramatically expand the CDFI Fund to $1 billion to ensure an infusion of loan dollars that CDFIs can start disbursing into their communities now, particularly for disadvantaged and rural communities.
- Guarantee that all small business financing products are unrestricted so small businesses are able to use the loans to provide employee benefits, pay wages, pay taxes, make telework arrangements, pay rent, refinance existing debt, and more.
- Pass legislation extending Truth in Lending Act disclosure requirements to small business loans or credit products so that small businesses struggling with cash flow are not taken advantage of during this pandemic. Such legislation would ensure more transparency and fairness in small business lending products, as we’ve recommended in the Small Business Borrowers’ Bill of Rights.