What Does the Federal Stimulus Package Offer Small Businesses?
There are three key components to the CARES Act pertaining to business owners:
- The Payment Protection Program (PPP)
Otherwise known as PPP, this part of the federal stimulus package is one of the most beneficial for small business owners. In short, PPP consists of hundreds of billions of dollars of government-backed loans to help companies maintain their payrolls through the pandemic. Qualifying companies can borrow up to 2.5 times their average eligible monthly payroll costs for a total of $10 million at interest rates that won’t go above 4%. There is also the potential for loan forgiveness depending on how much a business borrows and what the money is used for. Eligible companies (or nonprofits) must have less than 500 employees, including part-time workers. Though, certain businesses with up to 1,500 can also qualify. Another thing to note is that freelancers or gig economy workers can also apply. These loans do not require collateral, personal guarantee, or a pristine credit score.
- New tax breaks and provisions
The CARES Act introduced some changes to the tax policies affecting small businesses. Firstly, employee retention credit means that employers whose operations were affected by Covid-19 or whose gross receipts dropped more than half from the same quarter last year qualify for a refundable tax credit. The credit is for worker wages and can total up to $10,000. Secondly, the stimulus package ushered through the deferred payment of employer payroll taxes. Basically, employers who don’t receive PPP forgiveness can delay payments on their payroll taxes but must pay them back within two years.
- Expanded Small Business Association (SBA) loan program
With these other changes came the expansion of the SBA’s Economic Injury Disaster Loan (EIDL) program, which is otherwise designated for federally declared disaster locations. Businesses from all across the country can now benefit from low-interest loans of up to $2 million. The interest rate is 3.75% for businesses and 2.75% for non-profits; organizations can get a $10,000 advance on the loan.
Then there are a couple of other government initiatives that business owners can benefit from, including $1,200 recovery checks sent to many Americans and a temporary Pandemic Unemployment Assistance program. Outside of this, several particularly hard-hit industries have received specified aid, including airlines, airports, and cargo carriers, which have received billions of dollars in loans and grants.
How Effective Has the Stimulus Package Been So Far?
It all sounds good in writing, but just how much has the government’s stimulus package actually helped businesses? The PPP loans have probably been the biggest contributor to surviving businesses. In fact, the US government has doled out over 5.2 million PPP loans totaling $525 billion since April. However, this was an unprecedented experiment that has left some businesses owners without much-needed help. One of the biggest hitches was that many small business owners, many of whom were members of minority groups, say they were denied even small loans. At the same time, large companies — like Shake Shack and AutoNation — were awarded millions in federal aid. Additionally, among the companies that did receive loans, many complained the amount wasn’t enough to tide them through months of hardship or was too much to spend specifically on payroll.
“I understand in principle it's encouraging us to get people back to work," Christian Piatt, the co-owner of Brew Drinkery in Granbury, Texas, told NPR. "But in practice, when you have a retail storefront that is not being allowed by local authorities to operate in the way that we had before, there should be some consideration to make it to account for that."
A watchdog report overseen by the Inspector General found that many didn’t receive loans because the Small Business Administration didn’t instruct lenders to prioritize underserved communities. “These borrowers, including rural, minority and women-owned businesses may not have received the loans as intended,” said the Inspector General in May, calling on lenders to better emphasize the needs of the previously overlooked communities. Other issues have also plagued the stimulus package’s success, including over $1 billion in PPP fraud, incorrect payments to people who are no longer alive, and computer or processing glitches.
Combined, the lack of comprehensive coverage for all businesses in needs has meant that many entrepreneurs have had to close up shop forever. Though there is no tally of the exact number, small businesses across the country have been shuttering at an alarming rate. Even local gems and beloved neighborhood stables are struggling to stay afloat, and distraught communities have been forced to say goodbye. According to a Partnership for New York City report, roughly one-third of New York City’s 240,000 small businesses may never reopen. This same trend is true in many other parts of the country.
How Will the Government Help Businesses Going Forward?
There’s room for improvement in the federal government’s attempts to revitalize the US economy — so what’s the plan going forward? Well, the plan is currently unclear. The US government has struggled to agree on a course of action, engaging in a drawn-out back-and-forth in the hopes of making a deal.
Meanwhile, Chairman of the House Select Committee on the Coronavirus Crisis, Rep. James Clyburn, has warned that businesses are struggling for breath. “Additional economic stimulus is urgently needed… as the pandemic drags on, states, cities and businesses are warning that more layoffs may be coming,” Clyburn said this week. The Democrats are pushing for a $2.2 trillion relief package, while Republicans argue the number is too high, instead working on their own “skinny” package that would sit around $1 trillion. When the package is decided upon, businesses will be granted further aid on top of the existing offerings from past legislation. However, it’s not currently clear exactly what that will look like.
About the Author
Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.