Opinion | The PPP is not a good option for micro-enterprises. This is what Congress must do.


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Roger C. Altman is the Founder and Senior Chairman of Evercore and served as Deputy Secretary of the Treasury under President Bill Clinton.

The new wave of COVID-19-19 cases represents a severe blow to micro-businesses across the country, those with 20 or fewer employees. Two months ago, almost half of these had closed and laid off their employees. Now, as many of these businesses struggle to reopen, they face the new hurdle of states rolling back plans to ease closures.

Unfortunately, the Paycheck Protection Program to provide small business forgivable loans, despite its enormous size and recently improved flexibility, did not help micro-businesses in the way that it should have, as highlighted by the new and infuriating revelation that major law firms and lobbyists, and other questionable recipients, received much of this money. Unless the final round of economic rescue legislation, expected later this month, includes more tailored local assistance, a significant portion of these smaller businesses will never reopen, with devastating consequences for workers and communities.

A team from the National Bureau of Economic Research respondent over 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 since January due to employee health issues and lack of customers. . a more recent poll of small businesses conducted by the US Chamber of Commerce and MetLife revealed that more than half were still closed or only partially open. Most of these very fragile companies are microenterpriseswhich is not surprising because 89 percent of all US small businesses fall into this category.

With the resurgence of the virus and dimming prospects for a V-shaped economic recovery, the impact on these businesses could worsen, in part because many of them require face-to-face interaction with the consumer. Unfortunately, most of our smaller businesses can’t last for months without a lot of revenue. A quarter report less than two months of cash remaining.

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Congress passed the Cares Act, which authorized $349 billion in loans, in March. That was replenished with another $320 billion in April. These are very large amounts, but they went to only 14 percent of small businesses in the country. Despite good intentions, the Paycheck Protection Program has not been very suitable for micro-businesses. This is why:

Originally, the program required that 75 percent of the loan proceeds be spent on payroll within eight weeks for the loan to be forgivable. That was a difficult hurdle for microbusinesses because other costs, such as rent, utilities, and taxes, often make up a relatively high share of expenses. Also, if a business is already closed and with limited prospects for returning customers, immediately rehiring employees doesn’t make economic sense.

Last month, Congress changed rules to lower this payroll threshold to 60 percent of loan proceeds, extend the period for spending funds to 24 weeks, and extend loan terms to five years. Still, the new payroll hurdle remains too high for many microbusinesses; for others, the changes come too late. Also, companies with up to 500 employees were eligible for loans. Since these loans are made through banks, these larger companies, which have the strongest banking relationships in existence, had an advantage in 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 adopts the measure, it should require that a portion of the proposed tax assistance provided to states be used for long-term, low-interest loans to microbusinesses.

This approach would allow states to work with their local governments to select which microenterprises need assistance and tailor that assistance 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 climb out of the hole left by months of no revenue, but to cover reopening losses as customers only gradually return.

Losing even a fifth of America’s micro-businesses would be devastating. They not only employ millions, but they form the fabric of our communities. Plus, they give millions of Americans an entrepreneurial spirit and something to build and manage on their own. Let’s help some of these firms now, instead of looking back later to see that lobby shops, big law firms, real estate developers and hedge funds, who didn’t need help anyway, were prioritized over Main Street stores.

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