Rush for emergency loans to help small businesses lose money

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Temporary closed signage is seen at a Manhattan neighborhood store following the coronavirus disease (COVID-19) outbreak in New York City, United States, March 15, 2020.

Jeenah Moon | Reuters

The relief available under the Coronavirus, Aid, Relief and Economic Security (CARES) law is slow, piecemeal and confusing. Delays put millions of businesses at risk of closure, threatening their employees, suppliers and communities. This puts us all at risk of a deeper recession.

Last Tuesday, the Small Business Administration launched a disaster relief recovery portal, repeating the promise in the CARES Act: the first round of aid would be delivered within three days. He has not arrived.

The U.S. government on Friday attempted to launch the $ 349 billion paycheck protection program under the CARES Act. The PPP is administered through the existing banking systems of Small Business Administration lenders. Some banks were not ready. Some are already inundated.

Bank of America has confirmed that it has received requests from 177,000 small businesses for a total of $ 32.6 billion in funding. Wells fargo said it was at full capacity for its award under the program.

Meanwhile, anger over these two programs is growing in the small business community. They don’t even know half of it. As the program continues, other faults are likely to become apparent. The confusing legislation favors businesses that already have relationships with lenders and leaves out many of the most vulnerable businesses.

Smaller companies, with fewer than 50 employees, bore the brunt of the initial crisis, cutting 90,000 jobs in March, according to an ADP poll. These are restaurants, gyms and convenience stores. They had the least money – an average value of 15 days, according to the JPMorgan Chase Institute research. They had to fire their employees, who are often friends too. Now they watch their life’s work fall apart.

And it is likely that this help will leave many of them completely on the sidelines.

The Foundry Group has spent hundreds of collective hours this week studying these programs and communicating updates to companies in its portfolio. Banks deploying the program are unprepared and lack basic SBA and Treasury advice on key details of the application process and the overall program. Treasury guidelines are often conflicting internally – for example, on whether 1099 entrepreneurs can be counted by companies when calculating their potential loan amounts.

Companies that are backed by professional investors, with all the experience, resources and expertise that this entails, struggle to understand the options available to keep employees on the payroll as companies absorb the shock. initial closure.

The PPP loan program needs to be immediately clarified and streamlined. This should be the first priority of the new coronavirus recovery czar.

Congress has done the right thing by making parts of aid programs forgivable so that the most vulnerable companies are not hampered by debt, but will the money allocated by Congress reach them in time? ? Or, in many cases, will it reach them?

These companies are the lifeblood of America. And we are almost completely abandoning them to get through this crisis on our own. Aid to help these businesses will not reach them if we don’t take immediate action to clarify the rules, get the technology going, and launch a coordinated national campaign to connect with and support all the small businesses that need to help. .

Steps to speed up aid

Here are steps the business community and the federal government could take to speed up aid, likely without passing new legislation.

1. Set up individual loan funds

Anticipating that federal aid would unfold slowly, states, communities and foundations set up their own loan funds, often with donations, community reinvestment deed credits from local lenders, and assistance from local economic development groups. There are more than 30 to date nationwide, such as this one in Louisville, Kentucky, which aims to deposit 0% interest rate loans into the bank accounts of companies with less than 10 employees in a week. SBA funds could flow into these loan funds, which have lines of communication with their own small business communities – and can act much faster than the federal bureaucracy.

“We are disappointed with the lack of broader inclusion of community loan funds in P3 and hope that we can find a way to be partners in reaching out to all Americans and businesses and nonprofits that do not. are not easily accessible by large institutions, ”said Lisa Mensah, CEO of Opportunity Finance Network, the association of community development financial institutions, which are involved in some of the new loan funds.

2. Urge large companies to pay off debts faster

Large companies that market to small businesses and use their services are starting to scale up, paying off their debts faster. Last week, a coalition of tech companies serving the small business market: Alignable, Fundbox, Gusto, Homebase, Womply, SmallBizDaily.com, Agency News, Company.com and Small Business Edge – launched an initiative called #pay today to encourage large companies to pay faster.

Let’s encourage a national movement around this. It is our respective civic duty as individuals and businesses to do whatever we can to support the small businesses in our communities.

3. Appoint a clear leader

Whatever interagency rivalry hinders the interpretation of rules and the implementation of programs, it must end. That’s management 101. Mobilization needs a clear leader, who will be held accountable for ensuring that these billion dollar programs run smoothly and transparently. President Donald Trump should immediately appoint such a leader to oversee these programs.

4. Provide more clarity

The PPP loan program needs to be immediately clarified and streamlined. This should be the first priority of the new coronavirus recovery czar.

5. Develop the program

In addition, the program itself needs to be expanded. The goal of the program is to save jobs and provide a lifeline for businesses most affected by the COVID-19 economic crisis. However, the way it is structured almost completely leaves out businesses such as restaurants, fitness facilities and other small businesses unable to function in our current “refuge in place” society. These companies closed weeks ago and have already laid off employees.

These companies cannot access key elements of the program related to loan cancellation: for example, the ability to cancel loans based on future wage obligations is not accessible if companies have already closed and laid off people. and are unable to reopen quickly enough. These rules need to be addressed and updated to allow businesses like these to benefit from the program as they get back on track as the company emerges from their homes.

More Invest in you:
SBA and small business disaster lending have never faced a test like coronavirus
Coronavirus quarantine: missing work could be financially “overwhelming”
Don’t let panic guide your investment decisions. Here’s how to get started

We need them to survive. And we need them to have the capital available to rehire the workers they were forced to lay off at the start of the crisis.

For the country to recover, we need small businesses. Every small business that goes bankrupt or shrinks has ripple effects – laid off employees, unpaid rents, broken contracts – that collectively plunge us deeper into a recession hole. Small businesses are the backbone of our economy, the heart of our communities and the center of our reconstruction strategy. It is time to act to save these businesses.

Seth Levine is a founding partner of Foundry Group, a $ 2.5 billion venture capital firm based in Boulder, Colorado. Elizabeth MacBride is the founder of Times of Entrepreneurship, a publication covering entrepreneurs beyond Silicon Valley.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.


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