How to keep the small-business recovery going

With Congress and the Trump administration locked in negotiations over the next coronavirus aid bill, they should act on one simple but important matter to ensure the success of the first relief package. Simplifying the process of converting emergency loans to the smallest businesses into grants will ensure the stopgap loan program fulfills its purpose of supporting the nation’s top job creators.

Under the Paycheck Protection Program, banks have issued more than $520 billion in loans to small businesses that promise to keep their employees on payroll. Now is the critical stage to convert those loans into grants, as Congress intended. Unfortunately for these small businesses, they must submit lengthy and complex applications and paperwork to qualify for relief—no matter the size of the loan.

While the Small Business Administration prepares to open its portal for accepting applications to forgive loans this week, policymakers have advanced bipartisan legislation to simplify the onerous forgiveness process. Bills in the House and Senate would forgive all loans under the emergency program worth $150,000 or less if the borrower completes a simple, one-page document. This would allow the nation’s smallest businesses to focus their time, energy and resources on their businesses and employees, instead of complex forgiveness forms.

This policy has become a key component of the stimulus discussions because it would provide needed certainty to most small-business borrowers while reserving the more comprehensive forgiveness process for the bulk of outstanding program funds. Loans of $150,000 or less represent 86 percent of borrowers but less than 27 percent of loan dollars issued under the emergency program.

A streamlined process also would provide meaningful relief to hard-hit small businesses. An independent analysis by AQN Strategies projects forgiveness applications will cost $2,000 to $4,000 and require 20 to 100 hours for the smallest borrowers, totaling some 70 million hours of owner labor. With an average loan size of less than $19,000 for the smallest 60 percent of loans, these costs would represent 10-20 percent of the loan amount itself—considerable overhead for loans designed to keep businesses afloat, workers employed, and rents paid.

Further, automatic loan forgiveness would reduce costs to the taxpayers backstopping these emergency loans. Automatically forgiving a large quantity of small loans would relieve the federal government of the burden of processing and deciding on each one. The AQN analysis indicates the cost of automatic forgiveness would be lower for businesses and lenders than for the government itself. In other words, the juice isn’t worth the squeeze.

Small businesses and their employees are the backbone of the nation’s economy and local communities. As the United States continues to grapple with the repercussions of the coronavirus pandemic, these business owners’ time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork.

Rebeca Romero Rainey is the president and CEO of the Independent Community Bankers of America.