The Small Business Rescue Is in Trouble. The GOP Plan to Fix It Stinks.

ROCKTON, ILLINOIS  - MARCH 24: A normally busy Main Street is deserted as the small businesses that line the business district remain closed after the governor instituted a shelter-in-place order in an attempt to curtail the spread of the coronavirus (COVID-19) on March 24, 2020 in Rockton, Illinois. Rockton is a town of about 7,500 people along the banks of the Rock river in Northern Illinois.  (Photo by Scott Olson/Getty Images)
Fix the relief plan for these shops in Rockton, Illinois. Scott Olson/Getty Images

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Capitol Hill is mired in a stare down over the next round of the coronavirus bailout. After appropriating a woefully inadequate pot of money for the Paycheck Protection Program in their last bill, Republicans now want a quick, clean vote to add an extra $250 billion to the crucial small business rescue effort, which is quickly running out of funding (as pretty much everyone predicted would happen). Democrats, however, are resisting, because they want the new legislation to also include cash for hard-pressed states and hospitals, among other things.

To some, it might seem as if Nancy Pelosi and Chuck Schumer are holding the needs of America’s restaurants, auto repair shops, and retailers hostage to other priorities. But that’s not really the case. In fact, the Democratic list of demands includes a much more complete plan to help small businesses than the insufficient fix Republicans have proposed, which would still leave many mom and pop operations struggling.

As I’ve written, Washington’s attempt to help small businesses survive the era of social distancing is built on two key pillars, both of which are looking pretty shaky right now. First there’s the Paycheck Protection Program, which Republicans urgently want to fix, perhaps because it has drawn approximately 98 percent of the political and media attention devoted to this issue. It essentially offers businesses forgivable loans to cover their operating expenses and keep paying workers, instead of dumping them onto the unemployment rolls. The program debuted less than two weeks ago, and by Tuesday, the Small Business Administration said that it had already approved $247 billion of lending, or two thirds of its $349 billion limit. At the rate things are going, the cash will likely be tapped out before the end of the month, and there is almost certainly not enough to meet all the demand.

But while the Paycheck Protection Program’s cash allotment may be running low, it is in vastly better financial shape than the other key piece of the small biz rescue. That would be the government’s Economic Injury Disaster Loan program, which Republicans have shown no strong interest in repairing, but Democrats have.

While the disaster lending effort has received far less fanfare than the Paycheck Protection Program, it is equally crucial to making sure restaurants, bars, hardware stores, yoga studios, and other businesses don’t get completely wiped out. Paycheck Protection loans are mostly designed to subsidize pay (hence the name). Businesses can only borrow amounts up to 250 percent of their average monthly payrolls and are required to spend 75 percent of the proceeds paying workers. As a result, they’re not necessarily that helpful for some businesses. If you run a large fitness studio that pays a lot of rent but doesn’t employ a ton of full-time workers, the Paycheck Protection Program might not be that useful. If you own a bar that has been shut down and you don’t know when it will reopen, same problem, since PPP money has to be spent within eight weeks. The disaster loans, on the other hand, have fewer strings attached so they can be used more flexibly to cover long-term expenses like rent. They are especially important for small businesses with small staffs.

In the past, the disaster-lending program has offered businesses up to $2 million of low-interest loans. As part of the coronavirus relief bill, Congress also made businesses eligible for an advance grant of up to $10,000 through the program, which they won’t have to pay back even if their application is denied—basically, fast free money.

The problem? Congress only appropriated enough lucre for $10 billion of grants and $7.3 billion worth of loans. Meanwhile, by late last Thursday, small businesses had already applied for $383 billion of funding through the program.

Faced with this shortfall, the Small Business Administration has quietly resorted to dramatic rationing. It appears to be capping its initial loans at $15,000, as the New York Times recently reported, and dolling out grants to business based on the number of workers they employ, an especially stinging blow for truly small businesses that have just a handful of employees. (Bizarrely, the agency has mostly refused to confirm any of these changes to the media; instead, the information has largely leaked out from borrowers.)

In short, the Paycheck Protection Program may be about to run out of money in the coming weeks. But the government’s disaster lending has already turned into an immediate catastrophe of its own. In order for the small business rescue to work so that our towns and cities still look the same once the health crisis is over, both of these efforts need to function. They are complementary.

That’s why the Republican plan to quickly top off the Paycheck Protection Program and move on doesn’t make much, if any, sense. It would fix one pillar of the small business rescue while allowing the other one to crumble, meaning the whole thing would crash into rubble. (It’s not entirely clear why Republicans are only paying attention to one half of the equation, though it might have something to do with the fact that the Paycheck Protection Program is run through private banks while the disaster loans are being made directly by the government.) Democrats, to their credit, have said that they want to infuse more cash into PPP and the disaster loan programs while also tweaking them to streamline the lending process (since bureaucratic snafus have slowed both programs). Specifically, they’re looking to beef up the Paycheck Protection loans so they’re worth up to 300 percent of a business’s payrolls while adding enough funding for $300 billion in disaster loans and $15 billion in grants. That still might not be enough cash for these programs as this crisis wears on. But it’s at least a move in the right direction. Small businesses should hope Chuck and Nancy get their way.

For more on the impact of the coronavirus, listen to Tuesday’s What Next.