April 3, 2020
To: Members of Congress
From: The real world, small business trenches
Re: “Small Business Loan & Grant Programs”
On March 27, 2020, the United States Congress passed, and President Trump signed into law, the CARES Act, which is Congress’ 3rd attempt to mitigate the already happening US small business collapse. The program had many items, 3 of which were supposed to stop the small business bleeding. The 3 programs designed to stop small businesses from failing were:
- The $10,000 SBA-administered emergency advance-loan (or grant), to be provided within three days of online application at https://covid19relief.sba.gov/#/ ;
- The up-to-$2-million-dollar, SBA-administered economic injury disaster loan (EIDL) program to be provided to companies experiencing severe loss of revenues. This loan was to be provided by the SBA by filling out a loan application form which is not readily available or discernible from the SBA’s own Covid-19 website at https://www.sba.gov/disaster-assistance/coronavirus-covid-19 , but which might (?) use the same link as the emergency advance loan above; and
- A private lender issued, US guaranteed loan of up to $10 million under the Paycheck Protection Provision (PPP) of the above bill, with loans made by private lending institutions beginning April 3, 2020.
As the owner of an education company that exclusively trains tax and accounting professionals in small firms throughout the country, and who personally has over 40-years of experience owning and dealing with small businesses, please let me offer a “from the trenches” summary of these programs.
The first issue began when Congress began calling small business “businesses with fewer than 500 employees”. Every small firm financial professional in America scoffs at that definition. In real-life, a small business is one where the owner is out there “doing” every day, accompanied by 1-20 workers. They are the owners of small restaurants who show up before the restaurant opens, work a 12-14-hour day, and then clean up and go home. They are the owners of a small construction company working on the job driving nails and directing the crew. They are the owner of a small medical practice that works incredible daily hours accompanied by the office and medical staff.
In other words, Congress has no idea of what small business actually is or does, what it takes to be successful, how to draw on a personal credit card to cover this week’s payroll, how to put their house up as collateral for a new piece of equipment or essentially how to incur incredible risk to provide the jobs that run America. According to a 2017 study by CareerBuilder, 78% of America lives paycheck-to-paycheck. Congress, this is what it means to be a real small business. And Congress, bluntly, these businesses have a few days left or are already closed. Your fancy program is too late and is not working.
- We have not heard from a single person in the USA that has received the “3-day guaranteed” $10,000 grant through today (4/3/20), including ourselves, after 5 days of application.
- The EIDL program is not even operational yet to even apply to the SBA, unless it uses the same application form as the grant, but no one knows for sure.
- The banks are overwhelmed with PPP loan applications and don’t know how to process them, and some have not even made the corporate decision to participate in the PPL, even though it is supposed to start today.
The failure must lie squarely in the hands of a US Congress so consumed by partisan politics that you never even determined exactly where the immediate actual need for funds occurred and using a definition of small business that is not relevant to the 78% that are trying to get through next week.
You followed that by implementing a law that is administered by the SBA, an agency renowned by US small business advisors as one of the most red tape ridden, obtuse agencies in the US, to be avoided if at all possible. Then you take this administrative-layer-consumed agency and throw a program at them that dwarfs anything they have ever done. Oh, and to improve on your Einstein-like decision making, make them work from home to administer it, when they don’t have policies or equipment to do so. Do you really think this will work? Are you smarter than the actual virus?
You then designed a loan program in which the very lenders don’t want to participate because of the layers of risk you added at the last financial burp ten years ago. Throw in unclear guidance, high risk and low profit margins and, why, you are expecting the lenders to act like a small business with high risk, intimidating layers of red tape and low profits!
Small business has run out of time. Reality is that no money is flowing because the SBA is in total collapse from a combination of existing administrative red tape, combined with a new program that dwarfs anything they have ever done before, combined with Covid-19 requiring everyone to work from home, combined with no pre-existing policies or procedures to actually work from home.
I think we need to plan on no money actually flowing until mid to late April, at best, and that the majority of small businesses upon any receipt of money will use it for food, loan payments and housing for themselves before trying to pay payroll-it is already that desperate in the hospitality and restaurant industries, and I am getting panicked phone calls now from ancillary industries.
Congressional ideas of small businesses being those with fewer than 500 employees do not reflect that real small businesses are those with fewer than 50 employees, and the majority of these folks are already gone or are reeling and better start planning for a worst-case scenario.
I am also getting reports from our thousands of financial advisor class attendees that the number of EIDL loan applications already exceeds 1,000,000 which also means the available money (as I predicted in our CARES Act course on April 2) is not adequate for the needs of small business. So, no money is flowing, an agency is in disarray, lenders are unable or unwilling to lend, and there is not enough money. Small business, as we know it, is in major trouble. And during this country-ending disaster Congress is debating inquiries, investigations, and the President; the President is refusing to admit he made a mistake; and the opposing party is second-guessing everything and also refusing to admit the President could have been right on anything rather than trying to help.
Congress and Mr. President, bluntly, get off your rear ends, stop this partisan garbage that is causing many of these problems, kick some agency butt, and actually represent your constituents instead of yourself. Stop pointing fingers, admit some mistakes and work together for a change.
Bob Jennings CPA, CFP®