Congress at odds over how to replenish funds, solution providers say program falls short
The $349 billion Small Business Administration (SBA) program designed to help businesses disrupted by COVID-19 is running out of money, leaving many companies without aid until Congress approves new funds.
The Lowdown: In the past two weeks, the Payroll Protection Program (PPP) approved more than 1.4 million loans valued at more than $315 billion. At the current rate, according to the SBA, the program will run out of money and, by law, the agency must stop approving additional applications until Congress approves new funds.
The Details: Congress is working on new funding measures, but Democrats and Republicans disagree on the terms. Republicans want another $250 billion for the program. Democrats do not disagree on the need for funding, but want to steer more money toward minority-owned businesses and highly impacted sectors such as hospitality, food services, and health care.
The Democrats wanting more direction in the distribution of funds is not unwarranted. Early analysis of PPP loan approvals shows that distribution is uneven, with money going to businesses in less affected regions and sectors.
The Impact: If PPP runs out of funds, businesses could find themselves without the cash needed to maintain their staff during the economic downturn. While many solution providers are applying for PPP assistance to cover their payroll costs, their primary concern is their customers running out of money and not being able to pay for their products and services.
Background: PPP is a controversial assistance program. In a rare bipartisan effort, the federal government approved the funding to help keep businesses afloat and people employed. Despite the funding measure, companies laid off or furloughed millions of workers. As of the latest jobless claims report, more than 20 million Americans are out of work due to the COVID-19 pandemic.
Solution providers, like many small and midsize businesses, say PPP is problematic. Designed for quick cash infusions, PPP has proven slow and confusing. The process changed several times as the SBA tried to simplify the application mechanisms. Banks were slow to get onboard with the program, further complicating the process. Some solution providers report receiving their $10,000 advance under the program, but not many have received their full funding.
The SBA says it’s processed 14 years worth of disaster relief applications in the past 14 days. The volume reflects the scale of the economic impact and the challenges of getting funding to affected businesses.
In community conversations, solution providers bemoan the slow pace of the PPP process. Moreover, they express confusion and frustration over the terms. PPP provides up to 2.5 times the average monthly 2019 payroll to cover salaries, rent, and utilities. While a loan with a two-year term and a 1% interest rate, the program will forgive most of the funding if a company maintains payroll levels and headcount through the end of June.
Solution providers say that 2.5 times the average monthly payroll isn’t enough to cover three months of salary. The requirements of maintaining payroll levels is too great an expectation. Many expect that their loans will not qualify for forgiveness.
The Buzz: “It’s a critically important thing to accomplish — you want to be able to allow the small businesses to jump-start on the other side of this. The challenge has been having people access these funds,” said Rep. Antonio Delgado (D-N.Y.) in an interview with the New York Times.
“We urge Congress to appropriate additional funds for the Paycheck Protection Program—a critical and overwhelmingly bipartisan program—at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks,” said Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza in a statement. “The high demand we have seen underscores the need for hardworking Americans to have access to relief as soon as possible. We want every eligible small business to participate and get the resources they need.”
Channelnomics Point of View: The SBA is the primary resource for government aid for small and midsize businesses. While the program is under stress from the enormous economic impact of the COVID-19 pandemic, it continues to service and support businesses across the country. Channelnomics and The 2112 Group encourage solution providers to seek aid to help keep their businesses viable during the downturn. Also, solution providers should help their customers understand the resources available to protect their businesses and remain in operation.