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Roger Altman: How Washington can help the smallest businesses during the pandemic



The new surge in covid-19 cases represents a severe blow to micro businesses all around the country — those with 20 employees or fewer. Two months ago, nearly half of these had closed and laid off their employees. Now, as many of these business struggle to reopen, they face the new hurdle of states pulling back on plans to ease lockdowns.

Unfortunately, the Paycheck Protection Program to provide forgivable loans to small business, despite its enormous size and recently increased flexibility, failed to help micro businesses in the way it should have — as underscored by the new, infuriating disclosure that major lobbying and law firms, and other questionable recipients, received so much of this money. Unless the final round of economic rescue legislation, expected later this month, includes more tailored and more local assistance, a significant share of these smaller businesses will never reopen, with devastating consequences for workers and communities.

A National Bureau of Economic Research team surveyed more than 5,800 small businesses in April and found that 43 percent of them had temporarily closed due to the virus, and that their overall employment levels had fallen 40 percent from January due to employee health concerns and a lack of customers. A more recent survey of small businesses conducted by the U.S. Chamber of Commerce and MetLife revealed that more than half were either still closed or only partially open. Most of these very fragile enterprises are micro businesses, which is not surprising because 89 percent of all U.S. small businesses fall into this category.

With the virus resurgent and prospects of a V-shaped economic recovery diminishing, the impact on these businesses could worsen, in part because so many of them require face-to-face consumer interaction. Unfortunately, most of our smallest businesses are not able to last for months without much revenue. One-fourth report less than two months of remaining cash.

Congress passed the Cares Act, which authorized $349 billion in loans, in March. That was replenished by another $320 billion in April. These are very large amounts, but they went to only 14 percent of the nation’s small businesses. Despite good intentions, the Paycheck Protection Program has not turned out to fit micro businesses very well. Here’s why:

Originally, the program required that 75 percent of loan proceeds be spent on payroll within eight weeks in order for the loan to be forgivable. That was a difficult hurdle for micro businesses because other costs such as rent, utilities and taxes often make up a relatively high share of expenses. In addition, if a business is already shut and with limited prospects of returning customers, rehiring employees immediately does not make economic sense.

Last month, Congress amended the rules to lower this payroll threshold to 60 percent of loan proceeds, extend the period for spending funds to 24 weeks and stretch loan terms to five years. Even so, the new payroll hurdle remains too high for many micro businesses; for others, the changes come too late. In addition, businesses with as many as 500 employees were eligible for loans. Since these loans are made through banks, these bigger businesses, whic h have the strongest existing banking relationships, had a leg up on receiving the money.

There is still time for Washington to change course as it debates another economic rescue package, a version of which passed the House in May. When the Senate takes up the measure, it should require that a portion of the proposed fiscal assistance provided to states be used for low-interest, long-term loans to micro business.

This approach would allow states to work with their local governments on selecting which micro businesses need assistance and tailoring that help to their needs. Unlike Washington, these states and local governments are close enough to the real needs of their communities to make these decisions. They know, for example, that many businesses need long-term working capital, not just to dig out of the hole left by months without revenue but to cover re-opening losses as customers return only gradually.

Losing even a fifth of America’s micro businesses would be devastating. Not only do they employ millions, they form the fabric of our communities. Moreover, they provide millions of Americans with an entrepreneurial spirit and something to build and run on their own. Let’s help some of these firms now, instead of looking back later to see that lobbying shops, big law firms, real estate developers and hedge funds, which didn’t need help anyway, were prioritized over Main Street shops.

Roger C. Altman is founder and senior chairman of Evercore and served as deputy treasury secretary under President Bill Clinton.


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Posted: July 8, 2020 Wednesday 08:09 AM