Half of small businesses only have about a two week cash buffer before they collapse, but most Colorado businesses have been asked to close through late April at the earliest as we work to flatten the curve of COVID-19. Washington said help was on the way but for far too many, it just hasn’t gotten there.
Our smaller neighborhood businesses are particularly vulnerable. The relief bill includes $349 billion for loans to this beleaguered group — but there are huge problems. The lending rules have not been clear, and some banks don’t want to participate. Many community banks, especially in small towns and rural areas, are not approved as lenders. The smallest businesses who need help the most don’t have the lobbyists and accountants that bigger companies have on their side to navigate the system.
The stakes could not be higher for our 630,000 small businesses in Colorado and the 1.1 million Coloradans they employ. We must accelerate our efforts to enable small businesses to keep workers on payroll, help households and small businesses survive, and build resilience and the foundation for a restart of our economy.
Here are four actions we can and must take now to protect our small businesses:
Boost the Small Business Administration’s Capacity — The SBA guarantees loans and oversees the loan forgiveness provisions. Already lenders have experienced impediments from SBA delays in providing guidelines and other critical information to make the loans and a breakdown in the SBA system for processing the loans. In many rural and small towns, the primary lenders are community banks that have not been fully included in the program. They ought to be added immediately. The SBA currently administers about $25 billion through this program, an average of about $2 billion per month, and is now looking at a rapid-scale increase up to $349 billion to be delivered in just two months — that’s nearly $175 billion per month!
The relief package allocated funding for administrative purposes, and those funds must be used to enhance the SBA’s capacity. They’ve got to hire more people, and fast.
Get Relief Out Quickly — Even under the most optimistic scenarios, the SBA loans may come too late to prevent many businesses from closing shop. But state emergency small business and nonprofit relief funds, as well as Community Development Finance Institutions, stand ready to help meet the urgent needs of small businesses and serve as a stopgap and intermediary for the distribution of federal funds. I support leveraging existing platforms, such as the Community Reinvestment Fund’s common loan applications for business and loan origination software, to address the small business liquidity and solvency crisis as quickly as humanly possible.
Give the Smallest Small Businesses Tools to Succeed — We already know that the smallest businesses who don’t have accountants with the appropriate experience to help navigate the loan process are not as well positioned as the bigger companies. The cost of replacing 80% of all small businesses’ lost revenue for three months is estimated at more than $1.2 trillion. Congress must address this gap in its anticipated phase four relief bill and this time they should prioritize the smaller businesses. We should consider specific funding for businesses with less than 50 employees. The guiding principles of delivering additional funding should be speed and use of existing technology, information, and infrastructure wherever possible.
Examples of this approach include “reverse payroll withholding,” which has been proposed by Erik Gerding of the University of Colorado Law School. Under this proposal, the IRS could use its existing FICA withholding process to disburse funds to small businesses quickly, leveraging available data such as bank routing numbers to make payments. The amount would be ten times the employer’s social security withholding from January of 2020, which would cover up to 62% of an employer’s payroll, under the premise that this money is used to pay workers. A coalition of financial technology (FinTech) leaders has proposed another means of direct stimulus funding for small businesses, utilizing the existing infrastructure of merchant accounts and card networks to deliver these funds immediately.
Sow the Seeds of Broader Recovery — We must start planning for an eventual economic restart now, by taking actions such as working with the private sector to create capital pools and develop financial products that can continue to fund small businesses once the crisis has passed. We need to strengthen the small business safety net by exploring the creation of business interruption insurance related to pandemics.
The COVID-19 relief bill passed with overwhelming support by both parties. Now we must act with equal urgency and bipartisanship to streamline and accelerate the delivery of those resources to the people and small businesses who need them most urgently. In a time of existential risk to our small businesses — which constitute the lifeblood of our economy — we need to be creative and bold to deliver desperately-needed funding much more rapidly.