Latest round of PPP funding targets mom-and-pop businesses

Latest round of PPP funding targets mom-and-pop businesses

Congress is set to pass a long-awaited COVID relief bill that will reauthorize and replenish emergency loan and grant programs for small businesses that lawmakers hope will provide a critical lifeline for America’s smallest businesses as they endure continued pandemic-related business closures. Observers warn it may be too little, too late.

The relief package allocates $325 billion in aid to small businesses, with $284.5 billion of that going to a reauthorized Paycheck Protection Program, which allows businesses with 300 employees or fewer to access up to $2 million in forgivable loans to cover essential costs including payroll and rent. That’s down from the 500-employee threshold and $10 million maximum loan in a previous iteration of the program. Congress is expected to approve the law Monday evening, with the president signing it into law shortly thereafter.

“This short-term package is going to be very helpful, but a lot of damage has been done,” since the last round of PPP funding expired in August, John Arensmeyer, founder and CEO of the Small Business Majority, told MarketWatch.

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He said that the latest package contains several important provisions that will help smaller businesses, including a $12 billion carve-out that will go to Minority Depository Institutions and Community Development Financial Institutions that serve very small businesses and those in underserved and minority communities, while providing $20 billion in direct Small Business Association grants to companies in low-income communities.

The new rules will also attempt to increase participation in the program by small-business owners who have been reluctant to participate for fear of their loans not being forgiven, by simplifying the forgiveness application process. “Making forgiveness much clearer for loans under $150,000 will ease fears [among] small businesses of taking on debt,” Arensmeyer said.

Other provisions in the law include $15 billion in dedicated funding for live performance venues, independent movie theaters and cultural institutions, many of which may be shuttered for long spans after other parts of the economy are operating more normally. The law also allows restaurants to receive larger loans relative to their revenue.

Small businesses are in dire need of help, as evidenced by a recent survey by the National Federation of Independent Businesses, which showed that 25% of small business will have to close their doors in the next six months if economic conditions don’t improve, up sharply from 5% in November. Meanwhile, U.S. commercial bankruptcies surged 46% in November from a year ago, according to data from Epiq.

See: Retail bankruptcies in 2020 hit the highest levels in more than a decade, and experts say there are more to come

While PPP funding has provided needed support for many business owners, the program has systematically benefited larger operations, with 1% of borrowers receiving more than a quarter of the more than $500 billion in loans disbursed in the first rounds, according SBA data.

A fundamental hurdle for the smallest of small businesses in accessing PPP funding is that the private banks that facilitate these loans have incentive to lend to existing customers and those seeking the largest loan amounts, because these are more profitable to originate.

“At the end of the day, the overall system of access to capital is still skewed toward owners with existing banking relationships that can navigate the system more easily,” Arensmeyer said.

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