Just a few weeks ago, Seattle-based small business SnapBar — which provides custom photo booth rentals and selfie stations for events nationwide — was thriving, getting ready for a full slate of spring and summer events. But amid business closures and shelter-in-place orders brought on by COVID-19, owner and father-of-three Sam Eitzen and his team of 18 had to get creative — quickly — to keep the company going. After Sam and his leadership team slashed their own salaries by 50% and held a nearly all-night brainstorm session, they pivoted SnapBar’s entire business strategy to ship and sell gift boxes packed with items crafted by local small businesses.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27 to help business owners like Sam via $350 billion in federal loans and grants. But major structural flaws and implementation issues are preventing these loans from getting to business owners quickly — if at all — and providing the level of help they need.
Small businesses and their employees have already run out of time. Data from my company Gusto, which provides payroll, benefits, compliance and HR software to 100,000 small businesses, shows that layoffs increased by more than 1,000% from February 2020 to March 2020. There was also a 9% gap in overall wages paid to small business employees in March.
The primary way the CARES Act provides federal funding for small businesses is through the Paycheck Protection Program (PPP). This program provides forgivable loans for businesses with fewer than 500 employees and can be used to cover expenses like payroll, rent and group health insurance premiums. These loans are provided by lenders like banks and are eligible for forgiveness. Unfortunately, major structural and implementation issues have plagued PPP rollout from the start and are keeping crucial aid from being delivered quickly enough to save businesses.
One problem is that the platforms being used to administer this aid were not designed for the sheer number of businesses that need it. Many banks reported not being able to access the Small Business Administration (SBA) system to process PPP loans within the first few days of rollout. Meanwhile, the SBA’s loan processing platform experienced technical issues that left it inaccessible for hours at a time. Even once a small business owner is able to access PPP application programs, they must then navigate confusing guidance about what expenses are eligible for forgiveness and keep track of those expenses for months.
Private-sector companies can help ease these delays and must be empowered to do so. If the SBA opened its API, tech companies could build a faster and more user-friendly interface to help overwhelmed business owners navigate this process. Further, federal funds should be channeled directly through payroll providers that have existing relationships with these businesses and can validate information quickly. Sixty-seven percent of small businesses don’t know where to go to apply for government funding, because many have never faced this problem before. Enabling payroll providers to help can streamline the process with a platform that owners already know how to access and navigate. This will help them file PPP loan applications more quickly, which is crucial, given the first-come, first-served basis for these loans.
The loan forgiveness aspect of PPP is critical for helping small businesses, but it is also running into major roadblocks that must be addressed. The federal government has promised to buy back loans so that lenders can release small businesses from repaying them without being stuck footing the bill. But the large number of loans and vague guarantees from the government about when or how buy-backs will work have left banks and other lenders skittish. There is currently no way for lenders to estimate the credit risk of these struggling small businesses, and many are wary of getting involved.
On the first day that loan applications were open, Bank of America and J.P. Morgan Chase were the only large U.S. lenders accepting applications. The federal government must make it clear to lenders that they will purchase all loans in a short time period.
The way PPP is written has created a situation where larger companies that have closer to 500 employees are getting quicker access to aid, while the smaller businesses are being left out. Some major banks are only accepting loan applications from current small business customers, who tend to be larger and better established. Among Gusto’s 100,000 small business customers, only about half currently work with one of the major banks. It’s imperative that major banks open access to PPP loan applications to all small businesses immediately.
More work must be done at every level to improve the PPP and help small businesses before time runs out. The current loan process must incorporate help from tech companies and payroll providers to make it faster and more user-friendly. More direct grants are needed to provide direct relief to businesses quickly by lowering restrictions and circumventing loan forgiveness confusion. Lenders must take an inclusive approach to their loan application process. Above all, we need to move quickly.
Small businesses are essential parts of our neighborhoods, communities and the U.S. economy. They employ 59 million people. And they need help now. We need to flatten the curve of this disease, but we also need to bend the curve for small businesses on the brink of collapse.
