Why Chris de Ruth and Small Businesses Need to Access PPP

Less than two weeks after the launch of the program, the Paycheque Protection Program lack of money. It was predictable: eligibility for the program – which grants low-interest loans to businesses with fewer than 500 employees and cancels loans if employees are kept on the payroll, effectively subsidizing their labor costs – of work – is very wide. Before the law is passed, economists warned Congress they should take over $ 1 trillion to meet the demand for loans offered under the program, but the final version of the CARES law only provided for $ 349 billion for them, which has now been pledged to applicants. Washington Republicans and Democrats said on Sunday they were close to reaching a deal to add hundreds of billions of dollars to the program next week, as well as funding for hospitals and for disaster loans. small businesses.

Since there is a backlog of approved PPP loans to finance, the delay in raising the ceiling may not even have such a large effect on how quickly funds are ultimately disbursed. But these topical events – hitting the cap, followed by a legislative dispute about when and how to tackle it – further increased the uncertainty I was already hearing from small businesses seeking funding to know. if or when they would get them.

In conversations over the past two weeks, business owners I’ve spoken to have generally seemed optimistic about the program, but are unsure when and if they will receive their money. This uncertainty is not just a problem for business owners, as a central goal of the program is to get those businesses to keep their employees on the payroll. In many cases, businesses that have lost customers or shut down are faced with a choice: lay off workers and let them hit unemployment, which has been improved so that the average worker can earn around $ 1,000. per week in benefits, or keep them on the payroll. hopes to eventually obtain a forgivable loan to cover salary costs. The layoff route has the considerable advantage of not requiring the business owner to advance money to the workers in the hope of being reimbursed by the government later, so it is important to provide fast and secure PPP funding for the program to achieve its objective.

To be honest, the government had to put all of this in place in just a few weeks. He didn’t have a good solution he could take in commerce to provide payroll support to businesses, so he devised this structure which relies on the Small Business Administration to issue forgivable loans to businesses. through private banks. Since the SBA already takes out small business loans and most businesses already have a relationship with a bank, this approach had the advantage of using existing infrastructure and staff.

But many banks were slow to process the loans, in part because they felt confused by the advice they received from the government on how to do it. And several applicants I’ve spoken to over the past two weeks have said their banks are backed up pending loan approval from the SBA, which is not used to handling such a large volume of applications. In some cases, they could not get loans from their regular banks – either because their regular banks limited PPP loans to existing loans. ready customers or because their banks weren’t SBA lenders at all – so they had to scramble to find a new lender to make a loan at a time when lenders are inundated with P3 requests.

The Trump administration did not disclose how many pledged loans were actually funded, and Washington To post said Thursday that the indications of lenders and borrowers suggested that the vast majority of loans had not yet been funded. One of the successful applicants, Kirsten Copeland, who owns a law firm in Arizona, told me that she submitted her P3 loan application to her bank on April 1, two days before the banks could even start to start. process loans. His bank, First Fidelity, told him that the SBA approved his loan on April 8 and the loan was funded on April 15, a two-week turnaround in total. David Howard, an accountant in Washington State, told me that four of his clients had applied for PPP loans and only one had been approved last Friday; this client had a period of 15 days between the request and the financing. Other applicants I spoke with were less fortunate and were still waiting for loan approval when the cap was hit.

The program cap encouraged everyone to apply at the same time, clogging the banks. While companies theoretically had until June 30 to apply for the loans, they reasonably rushed to apply quickly before the money ran out. Of course, many companies also applied quickly because they are battered by the crisis and have acute cash flow needs, but some might have waited if the weather hadn’t been so noisy. The rush also created an advantage for companies that had existing relationships with banks that were good at processing loans; The readiness and efficiency of transferring these requests appear to have varied from bank to bank, which collects origination fees from the government in return for processing the loans.

The public has drawn much attention to the fact that some large companies, such as Ruth’s Chris Steak House, were able to secure substantial PPP loans despite the program’s apparent focus on small businesses. I think the criticism of the participation of these companies is somewhat misplaced; the first two PP3s stand for “paycheck protection,” and the best measure of the program is how well it helps workers, not the businesses it helps. The program should ideally focus on businesses where forgivable loans make the difference between layoffs and employee retention, and labor-intensive businesses that have lost all or most of their customers. like restaurants and hotels, meet this bill, whether large or small. That was the rationale for letting restaurant chains and hotels participate in the program as long as they have less than 500 employees per location, and I think that was a good idea. I also note that two common criticisms to the left of the CARES Act – that it targets too much support for big business and should have been bolder, like programs in Britain and Denmark that force the government to pay a large part of the private wage bill – are in tension with each other.

However, financial support for Ruth’s Chris should not come at the expense of independent restaurants and other true small businesses. The frustration of small business owners and employees who find themselves behind businesses with more sophisticated financial operations and deep banking relationships, and seeing the program run out of cash before they can access it, is very valid. . This is why it was a mistake to set such a low ceiling and why it is important to raise the ceiling quickly, raise it again when we are about to hit it again and send out strong public signals. indicating that the program will have the money. it must finance loans to each qualified candidate.

While the CARES law is a patchwork, the difficult start of PPP actually shows us one of the advantages of a patchwork approach. The law’s improved PPP and unemployment benefit provisions together offer two ways to get government money to a worker in a struggling business: financial support to help the business continue to pay the worker or benefits after the worker’s dismissal. This belt-and-suspender approach somewhat mitigates the negative effect on workers of the difficult start of the PPP.

Of course, the unemployment benefits section of the CARES law had his own growing pains. Like the SBA, state unemployment offices responsible for distributing these benefits face significantly higher than normal claim volumes, and some states (hello, florida) experienced particularly significant processing delays. It has also taken some time for states to figure out how to administer a newly expanded unemployment program that covers the self-employed and those leaving their jobs due to the crisis. New Yorkers started receiving their improved unemployment checks last week, and according to the Associated Press, at least 32 states expected to be able to pay for the newly improved and expanded benefits by the end of last week. When states get these enhanced benefits, they are retroactive to the week that began on March 29. And unlike P3s, spending on enhanced unemployment benefits isn’t capped, so workers don’t have to worry about the program running out of money.

It is understandable and inevitable, I think, that all of these programs take a long time to make money out. While the The Federal Reserve has had some practice for the economics of this crisis response, other agencies are learning to do new things on a large scale and quickly in a way that has been mostly impressive. Consider the Department of the Treasury’s handling of payments of $ 1,200 to most adults in the United States – for all coverage of the inclusion of the president’s name on physical checks, the Treasury has been find ways to issue most payments electronically and say he has already made more than half of the payments. The CARES law is less than a month old; In 2008, it took until the end of April for the IRS to begin sending out individual payments from a stimulus package that had been signed at the end of February.

Further relief will be needed, especially additional support for state and local governments that are losing huge amounts of tax revenue, so that government budget cuts do not worsen the economic recession. The PPP will likely have to be replenished again, as it will likely only be increased by $ 300 billion. So even if the Democrats don’t get that added government aid to this package, there will have to be at least one more package, and they can look to have it added to that – which Congress will hopefully stay on. in town to negotiate.

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