Update 509 — Regular Disorder on the Hill:
House to Vote on Wage Hike Nixed in Senate
Late last night, the Senate parliamentarian ruled the Democrats’ bill to raise the minimum wage to $15/hour ineligible for the $1.9 trillion reconciliation package. The House is expected to vote on the package tonight, with the wage hike, adopt it, and forward it to the Senate.
The bill includes new and critical provisions for small businesses, the engine of job creation. Stimulus efforts directed at small businesses have a much greater multiplier effect than other forms of business relief and do not go into savings as direct relief tends to. And on Monday, President Biden announced major improvements to the Paycheck Protection Program (PPP).
Below, we look at the small business provisions in the current stimulus bill, the Biden administration’s recent proposals, the record of PPP, and reform options under discussion.
Good weekends all…
Earlier this week, President Biden announced major changes to the Paycheck Protection Program (PPP) designed to target relief to businesses with the smallest number of employees. Biden’s policy change recognizes that uptake on the newest round of PPP funding has been slow and that many businesses most in need of assistance struggle to gain access to the relief program.
Small Business Big in Relief?
Almost a year into the economic crisis, many small businesses continue to struggle. Roughly 60 percent of owners who made employment reductions over the past year reported that they are still unable to restore their full workforces. Restaurants will likely face difficulties as long as restrictions on in-person dining remain in place. Tipped workers in the restaurant industry — who in most states are paid a sub-minimum wage — have reported seeing a significant drop in income.
The stimulus bill before Congress allocates $50 billion in small business aid, making it one of the smaller pieces of the package. This funding includes:
- $25 billion for a new Small Business Administration program to provide grants to restaurants. Under this program, restaurants are eligible for up to $10 million in funding, which can be used for a range of expenses, including payroll, rent, and utilities.
- $15 billion for the Targeted Economic Injury Disaster Loan Advance program, which provides emergency grants to small businesses and nonprofits located in low-income communities that have suffered a significant drop in revenue.
The bill also extends eligibility for PPP loans to larger nonprofits and creates a pilot program to raise awareness of COVID relief programs among businesses that currently lack access.
Small Business Policy under Biden
This week, the Biden administration announced critical changes to PPP. For a two-week period that began on Wednesday, only businesses with fewer than 20 employees will be eligible to apply for a loan. The loan formula has also been revised to provide larger amounts to the self-employed. These changes are intended to level the playing field so that the smallest employers will not be crowded out from paycheck protection. The intended result of this change is a more equitable distribution of the remaining funds.
Biden also promises to increase aid for minority-owned businesses as part of his Main Street Rescue plan by:
- Encouraging private equity investment in businesses located in low-income communities by expanding the New Markets Tax Credit to $5 billion yearly and making it permanent.
- Expanding access to $100 billion in low-interest business loans by funding state, local, tribal, and nonprofit lending programs in low-income communities.
- Strengthening and expanding the Community Reinvestment Act to ensure that our nation’s bank and non-bank financial services institutions are serving all communities.
During her Senate confirmation hearing earlier this month, Isabel Guzman, Biden’s pick for SBA administrator, made clear that equitably distributing small-business aid would be her central focus. The SBA still has around $144 billion left in the PPP, and Guzman committed to deploying it to promote Biden’s racial and equity agenda. On Wednesday, Guzman’s nomination advanced through committee with bipartisan support, and she is expected to be confirmed soon.
PPP: Record and Reform
Biden’s changes reflect longstanding challenges plaguing the nascent PPP program. The PPP loans authorized by the March 2020 CARES Act, totaling $523 billion, were not distributed equitably. Over half of the funds went to just five percent of recipients. About 600 large companies, including several brand names, received the maximum $10 million loan allowed.
In December, Congress passed a new round of PPP assistance, tightening the rules for second-time borrowers so that only businesses with 300 or fewer employees are eligible. Yet the program has seen delays in getting out new loans due to administrative errors and technological problems, with only about half of the $284 billion in new funding having been loaned out in six weeks.
Given these developments, it may take several more weeks before the remaining funds are distributed. This is a contrast from the initial round of lending from the CARES Act beginning in early April 2020, in which funds ran out in less than two weeks. But it is more in line with the second round of lending that began on April 27, in which loan uptake was considerably slower.
There were a number of potential reasons for the slower uptake in May and June, including businesses’ concerns over potential audits, enhanced unemployment benefits, and concerns by businesses that they could not follow the guidelines by which the loans would be forgiven. Currently, many businesses have had trouble determining whether they are eligible for a new loan due to the new rules established in the December bill. These factors suggest that the remaining PPP funds available will likely be sufficient to cover demand even if there is a spike in new applications due to Biden’s recent change to the PPP.
Small Business Support as Stimulus
The loss of the minimum wage provision, washed out in a Byrd bath, means the immense stimulus to the economy resulting from a wage increase for millions would be lost. However, small businesses employ an estimated 47 percent of the American workforce, and new business applications reached an all-time high of 4.4 million in 2020. Programs designed to prevent worker layoffs play an important role in stimulus. Since around 15 percent of small businesses may need to make permanent layoffs in the coming months, even a relatively small investment in direct assistance to businesses is vital to keep those workers employed.