Small businesses need more — and better — relief to survive COVID

We’re living through the cruelest summer for small businesses in recent memory. Despite federal legislation aimed at keeping them afloat during the pandemic, many are drowning. To survive the uncertain months ahead, small businesses need more support from policymakers, and they need it now.

The existing federal relief packages — most notably the Paycheck Protection Program (PPP) — haven’t been enough. Lawmakers are debating another relief package that includes an extension of PPP, which ended Aug. 8. It’s imperative that, this time around, legislation targets the underserved small businesses that have been left behind. According to the National Bureau of Economic Research, 2.2 million small businesses closed between February and May. Black, Latinx and immigrant-owned businesses bore the brunt of the pain. In many parts of the country facing a resurgence of the virus, small business owners who went into debt to reopen have also now opted to close permanently. In fact, Yelp recently reported that 55 percent of businesses that closed have closed for good.

Businesses are shuttering in rapid succession, in part because the PPP has fallen short, especially for the systemically underserved. Our organizations have partnered to help our clients — the vast majority of whom are immigrants, women, and people of color, and those that run very small businesses — access PPP financing. While Opportunity Fund has made nearly 1,000 PPP loans with an average loan size of $16,000, we’ve watched as business after business fails to qualify for assistance for one reason or another. We’ve seen firsthand how a well-intentioned, but flawed policy, is failing to stem the destruction of Main Street.

There is broad consensus that without additional, targeted relief, most small businesses simply won’t survive this pandemic. But small businesses don’t just need more relief, they need better relief that is directed at the people who need it the most. Relief that supports organizations like Community Development Financial Institutions, which have established relationships with historically underserved communities and are better positioned to get them capital. Relief that will bolster state programs already in place that are designed to get affordable capital into the hands of small businesses fast. And relief that extends the PPP, but automatically forgives loans for the smallest businesses.

It is this kind of targeted relief that can help business owners like Lenore Estrada, who founded Three Babes Bakeshop in San Francisco. As shelter-in-place orders resulted in cancellations of all of their corporate wholesale orders, Lenore and her team made phased decisions, each one more difficult than the next, starting with reduced hours, progressing to furloughs and then, as the situation worsened, layoffs. Lenore secured PPP funding in late April and was able to bring back some staff. But with COVID-19 continuing to surge in California, and corporate dining rooms shut down for the foreseeable future, Lenore and her team are trying to plan ahead for an uncertain future.

“When PPP runs out, it’s going to be grim for small businesses,” says Lenore. “PPP won’t get me through the end of the year. We’re breaking even right now. But when we run out of PPP, 90 percent of my business is still gone.”

While Congress debates another stimulus package, we propose policymakers take the following steps to direct the remaining PPP funds to businesses, like Lenore’s, that are most in need.

1. Congress should approve the proposed $2 billion in emergency funds to support the Treasury Department’s Community Development Financial Institution (CDFI) Fund. CDFIs have shown remarkable success as PPP lenders, outperforming much larger and better capitalized banks. In just a few months, around 300 CDFIs made $7.3 billion in PPP loans. As an example, JPMorgan Chase—which is the largest PPP lender and nine times the size of the entire CDFI industry—made four times the amount of PPP loans as these CDFIs. Given that CDFIs often reach underserved communities, they are the perfect channel for reaching vulnerable small businesses.
2. Legislators must reauthorize the State Small Business Credit Initiative (SSBCI) with at least $10 billion in appropriations. The SSBCI was created after the Great Recession to deliver flexible, affordable capital to small businesses around the country via guarantees, loan loss reserves, and other high-leverage capital access programs. As we face another period of economic downturn, the SSBCI can again create a strong incentive for financing of small businesses.
3. All current and future PPP loans under $150,000 should be automatically forgiven. This will help the owners of very small businesses while also incentivizing lenders to make smaller-dollar loans, since they’ll be easier and more cost effective to administer. In addition, remaining PPP dollars should be targeted at the smallest businesses that either haven’t received a PPP loan or can demonstrate they need a second one to survive. The Senate’s proposal permitting a second loan is a good start; and we urge Congress to streamline the requirements around proving revenue reduction to ensure that funds are deployed quickly to those who need it.

With these actions, policymakers can ensure that small businesses like Lenore’s can more equitably access desperately-needed assistance. Our Main Streets, as we know them, are at risk of vanishing. Now is the time for urgent action to safeguard their future, and ours.

Luz Urrutia is the CEO of Opportunity Fund, a community development financial institution and a leading nonprofit small business lender. Lexi Reese is the COO of Gusto, the people platform that provides modern payroll, benefits, compliance, and expert HR to more than 100,000 small businesses across the U.S. She has spent her career advocating on behalf of small businesses to help them succeed. Before joining Gusto, she led small business initiatives at American Express and Google, and served as a policy advocate at Accion International, which provides loans to people living in poverty so they can start their own ventures.