Small businesses will need more than the Paycheck Protection Program to bounce back stronger from … [+]
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This week, the Senate will reconvene to consider changes to the Paycheck Protection Program (PPP)—a well-intentioned, if poorly executed, effort to help small businesses and their workers survive the economic impacts of COVID-19. The PPP needs fixing: in particular, small business owners are pushing for more time and flexibility in spending their loans. A worthy endeavor, but reforming the PPP alone will not make it possible for small businesses to recover and bounce back stronger. Congress should consider other priorities that will be critical to the long-term economic success of small business owners and their employees. Here are five:
1. Direct grants and access to other types of capital. Small businesses will need additional cash infusions to sustain their operations. The PPP was a step in the right direction, but is not a viable solution for all small businesses, especially those owned by people of color. Some businesses don’t fully meet the criteria or are afraid to access the loans because of the strings attached and lack of clarity around the forgiveness rules. Importantly, the PPP was a plan to help employees of small businesses retain their jobs. But business owners have myriad other expenses, including rent and utilities. COVID-19 is not going away anytime soon, and many businesses will have to operate at a reduced capacity and demand. Cash grants and/or low-cost, long-term loans can help business owners pay their bills, keep their businesses afloat while they rebuild consumer demand, and bring their employees back safely.
The recent $10 billion set-aside for community development financial institutions (CDFIs) in the PPP was a step in the right direction. In addition to cash grants, there are other creative models for getting capital to small business owners. For example, credit unions—which are not-for-profit entities— have deep reach into local communities and rural areas. Policymakers should consider allowing credit unions to remove caps on their member business lending, allowing them to make more loans in their communities during this extraordinary time.
Reopening will be like opening a business for the first time—with all the requisite up-front expenses. A recent survey by Facebook and the Small Business Roundtable found that 41% of owners and managers plan to dip into their personal savings to reopen their businesses when the time comes. We’ve already asked for a lot of sacrifices from small business owners. Do we really want them to sacrifice their personal financial security? Making grants and long-term loans more available may help prevent that outcome.
2. Help with healthcare costs and coverage. Research from the Commonwealth Fund shows that the #1 challenge identified by small business owners is healthcare costs. While things may never be “normal” again, the struggle for small employers to offer affordable healthcare will remain. The smaller the business, the bigger the challenge. And the costlier healthcare becomes to a business’ bottom line, the more they shift that cost burden to their employees—by increasing deductibles and copays, requiring higher premiums, or reducing/eliminating dependent coverage. In fact, one-third of the small business owners surveyed said they’ve considered discontinuing healthcare coverage for their employees altogether.
That was before the pandemic. In recent months, the Kaiser Family Foundation estimates that 27 million Americans have lost their (mostly employer-paid) health insurance. Small businesses need help providing adequate and affordable healthcare to their workers, now more than ever.
Medicaid and marketplace coverage options are already available to support some small businesses and their workers, and they could be further bolstered to ensure that as many people have comprehensive health coverage as possible in this crisis and beyond.
3. Support for caregivers and paid leave. Like many, small business owners and employees are struggling to balance their work and family lives right now. According to the recent Facebook and Small Business Roundtable State of Small Business Report, nearly half of small business owners feel burned out trying to take care of business and household responsibilities at the same time (and women owners reported this at higher rates than men). Meanwhile, according to AARP, even before the pandemic, an average of 1 in 5 employees was providing care for an aging, ill, or disabled family member (this number has likely increased). While almost all small business owners agree that “supporting caregivers in the workplace is the fair and right thing to do,” only 18% have a formal, written policy to address family caregiving obligations.
As these businesses reopen, both owners and workers are concerned about how to continue caring for families—especially with children still at home—and minimize their likelihood of transmitting COVID-19 back to vulnerable members of their household. While the Families First Coronavirus Response Act expanded paid leave options, the benefits are limited and not well publicized. The Center for American Progress estimates that nearly half the private sector workforce may be excluded because of exemptions for both very large (>500 employees) and very small (<50 employees) businesses. Congress must innovate to close these gaps—and subsidize the cost for small businesses that otherwise can’t afford it—to make sure no workers are left behind.
4. A fairer tax system. A poll conducted by Morning Consult for Business for Responsible Tax Reform found that 53% of small businesses believe the tax code favors large businesses over small ones. Small businesses don’t have high-powered lawyers and accountants who create carve outs and loopholes; reinforcing an unequal playing field and putting them at a competitive disadvantage. The tax reform bill in 2017 furthered this inequity.
The CARES Act does include some tax relief for small businesses like the Employee Retention Credit, which provides a fully refundable tax credit up to $5,000 for qualified employee wages paid during the crisis. But small businesses remain cut off from pro-growth, pro-worker tax policies that could be crucial to survive.
Congress needs to review the tax code and enact policy that emphasizes simplifying the tax code for small businesses and their workers. Given the importance of small businesses coming out of the COVID-19 recession, we must lower the barrier to entry for small business ownership. Simplifying the tax code would achieve that objective.
5. A seat at the table. None of the solutions above work if the voices of small business owners and workers aren’t included in decision making. Only they know the precise challenges they are facing as we adjust to this new normal. The emergency solutions put in place at the beginning of this crisis were well intentioned, but incomplete—in part because small businesses are not well understood by policymakers.
The bottom line is that small business survival requires us to go beyond PPP. Policymakers must consult with small business stakeholders to ensure that the next phase of relief goes hand-in-hand with the proposals above, and anything else that small businesses need to survive this crisis. If these businesses fail, it’s the most vulnerable workers—hourly, low-income, and/or under the age of 25—that will be hit the hardest, making long-term recovery even more difficult. The only way to rebuild our economy is to put small businesses and their workers front and center.