Small businesses are being hit hard by the COVID-19 pandemic, as research from Harvard shows small business revenue in November was 32 percent lower than in January. The last thing these struggling businesses need is for the banking industry to capture relief funds meant to help them meet payroll.
Unfortunately, that is what Congress is doing in the latest COVID relief bill, which rewrites the Paycheck Protection Program (PPP) after the fact to help banks at the expense of small businesses. In essence, Section 340 on page 2202 (hidden deep in the bill to avoid scrutiny) shifts paying agent fees from the banks who were supposed to pay small business agents, who help companies obtain and comply with PPP loans, to the small businesses themselves who hadn’t planned for this extra expense.
Previous legislation explicitly tasked the banks with paying these fees, not small businesses, because the loans are meant to reduce small businesses’ costs. Forcing entrepreneurs to pay these loans out of pocket undermines the PPP’s intent and hurts businesses that are barely staying open.
At first, this seems like an insignificant change, but it will cost small businesses $3.7 billion in fees. Congress is being captured at the 11th hour by special interest groups who want to line their pockets at the expense of entrepreneurs who can’t spend millions on lobbying.
Big banks are corrupting the legislative process and are jeopardizing the livelihood of many small business owners. Entrepreneurs who have struggled for the last year to stay afloat because of COVID-19 restrictions may finally be driven under by this shameless legislative change.
It is disgraceful that Congress is disrupting the PPP, which is one of the most successful programs from the CARES Act passed in March. Congress is acknowledging the importance of the PPP, by replenishing the program with $300 billion in additional relief funds to help businesses survive the next few months until COVID-19 vaccines are fully distributed.
This year the PPP allocated over five million forgivable loans worth approximately $500 billion, saving more than 50 million jobs. Research shows that up to 84 percent of small business employees have stayed employed at least in part because of the PPP.
Funding for the PPP needed replenishment due to its great success and because the next several months will determine whether many small businesses weather this pandemic. A vaccine likely won’t be available until the late spring or early summer, and many states are tightening lockdown restrictions because of the recent surge in cases. A final round of PPP funding will ensure businesses on the brink of insolvency will survive until we fully reopen.
The latest bill also importantly clarifies that all PPP loans are tax-deductible, in addition to being forgivable if companies use the loan to maintain their workforce while meeting certain conditions. Adam Looney of the Brookings Institution claims this change saves small businesses close to $200 billion while simplifying the tax filing process.
Without these loans, a sustained economic recovery would have been difficult to achieve. According to Yelp, 163,375 businesses have closed since March, and the National Restaurant Association claims one in six restaurants have permanently closed nationwide. The PPP has prevented these numbers from being even higher, and continued relief will set the stage for a quick economic bounceback.
The overwhelmingly positive impact of the PPP on our economy makes Congress’s giveaway to the banking industry particularly frustrating. Changing a small business relief program to help banks is a prime example of politics run amok. Hopefully, public outcry will force Congress to get rid of this Wall Street giveaway and focus on helping Main Street instead.
Alfredo Ortiz is president and chief executive officer of Job Creators Network.