When the World Health Organization designated COVID-19 as a global pandemic on March 11th, it sounded the bell for what has been one of the most prolonged and volatile fights our nation has ever been through, with the virus calling into the ring every part of our country; from frontline healthcare workers working day and night to teachers having to adapt to remote learning to ensure the continuation of childhood education.
In terms of the indirect costs brought on by the pandemic, mostly stemming from government enforced lockdowns, small businesses have suffered like no other. The thirty million companies in the U.S. classified as a small business were responsible for almost fifty percent of the country’s GDP in 2019, equal to roughly ten trillion dollars.
This level of output, though, fell rapidly off a cliff as lockdowns restricted consumers from spending at their local businesses. Companies not set up to sell their products online were forced to either adapt to digital selling or completely abandon their entrepreneurial efforts. The owners of businesses offering non-digital services had little choice but to shut down, hoping the pandemic would end before they ran through their life’s savings trying to keep their business afloat.
To offer a lifeline to this thirty million strong group of entrepreneurs the government passed what is likely to be the largest ever stimulus bill as a percentage of GDP, at 2.2 trillion dollars and ten-percent of gross domestic product. While the CARES Act aimed to assist everyone struggling in the country, the Paycheck Protection Program was targeted specifically at small and struggling businesses; with an incentive built in to keep companies from laying off employees. 310 billion dollars was set aside for small businesses to access through an SBA loan, which would be forgiven if the company avoided layoffs.
Like all government assistance programs the Paycheck Protection Program came with massive benefits and a small percentage of fraud. Naturally, though, it was the fraud that received the morning headlines. Dozens of larger companies, after applying and receiving funds from the PPP, received scrutiny for taking funds that they needed much less than their smaller counterparts, which ultimately resulted in returns of PPP loans from these larger companies to the Small Business Administration.
Even so, the Paycheck Protection Program was completely exhausted within just two weeks, and while stimulus funds stopped the lockdowns bringing businesses to their knees continued.
Support for larger corporations however, particularly ones that are publicly traded, continued in an enormous way through financing means that are far out of reach of small businesses. Through floatation of new bond issues or issuance of stock public companies have been able to raise capital through financial markets, with investment banks serving as intermediaries. In the first 9 months of the year companies have raised more than 1.4 trillion dollars through bond issues and over 350 billion dollars has been raised from new issuances of stock.
Making these financing methods more favorable is the actions taken by the Federal Reserve to make funds all the more accessible to public companies, including ridiculously low interest rates and a debt purchasing program reaching into the tens of billions.
These means of raising capital aren’t available for the country’s small businesses. While large corporation have access to trillions of dollars in public markets, small businesses must rely on local banks to receive funding; which have much higher standards for loaning money than investors on Wall Street.
Many of these larger companies, wanting to show their support for small business, have taken it upon themselves to provide additional support for companies needing help. Facebook in the earlier part of the year offered 100 million dollars in cash and credits for small businesses to use for advertising on their platform. Apple recently halved the portion of App Store revenue it would take from smaller software developers.
One of the largest programs, which started long before the pandemic, is Goldman Sachs’ 10,000 Small Businesses program which aims to provide these small companies, and their founders, with the educational tools and resources to succeed in their ventures. In an interview with CNBC David Solomon, the CEO of Goldman, spoke alongside Warren Buffett, the Chairman of Berkshire Hathaway, about the benefits that the program has brought and the importance of replenishing the PPP to help companies get to the finish line. “If you’re gonna act a month from now, why kill off another x% of the people that are potential successes by procrastination.” said Buffett in the interview.
While Congress passed the CARES Act without fully understanding how long the pandemic would last, and therefore how long shutdowns would be necessary, it has become obvious that the original 2.2 trillion dollar bill wasn’t enough.
After months of seemingly endless arguments between both sides of the aisle, Congress passed another stimulus bill totaling 900 billion dollars. Roughly 325 billion dollars of those funds will go towards helping small businesses, with the majority of that going to the Paycheck Protection Program.
The bill was undoubtedly delayed for too long and thousands of small businesses failures occurred as a result. With the bill expected to be signed by President Trump within the next few days, small businesses will have a few months of relief, but while the $900 billion seems large compared to historical standards, it is still far from adequate, and another stimulus package will only be necessary.
Until the pandemic is completely in the rearview mirror representatives in Washington should stand by ready to pass another bill, this time, hopefully, without months of unnecessary arguing.