Emergency small business loans helped, but they won't be enough

Despite bipartisan support for providing more economic help, there's less agreement on how to do it -- and it's unlikely there will be a plan in place when the Paycheck Protection Program stops taking applications for new loans on June 30.

Congress included the lending program in its sweeping $2 trillion economic relief package passed in March, known as the CARES Act. It was launched quickly by the Treasury Department and Small Business Administration in April, and Congress approved a second round of funding when the pot ran dry a couple of weeks later.

To date, it's approved more than 4.6 million loans worth nearly $515 billion.

Generally, businesses with fewer than 500 employees were allowed to apply and the loans are forgivable if the money is spent to keep workers on the payroll. About 71% of small businesses surveyed in early June by the Census Bureau said they had received Paycheck Protection Program loans.

Administration officials, lawmakers and economists have pointed to May's robust jobs report -- which showed new jobs in restaurants, bars and other food services accounted for half the gains in employment -- as proof that the Paycheck Protection Program was effective.

But a lot of Americans are still out of work.

"The lift in recalled workers does not mean that the 20.9 million unemployed will not require sustained policy attention," said Joe Brusuelas, chief economist at RSM.

Congress isn't likely to take up another spending bill until after the July Fourth recess. Here's what lawmakers could consider doing next for small businesses.

Allow businesses to apply for second loans

One proposal backed by leading Democratic members of the Senate Small Business and Entrepreneurship Committee would allow business owners to apply for second Paycheck Protection Program loans. But it would limit eligibility to businesses with fewer than 100 employees that can demonstrate at least a 50% loss of revenue due to the pandemic.

A second loan could help those who spent the money, which was meant to cover about eight weeks' worth of expenses, and are still struggling to stay afloat. Some businesses may be at risk of having to lay off workers again once that cash runs out.

When the program was first created, Congress didn't anticipate that the pandemic would drag on so long. At first, small business owners had to spend their Paycheck Protection Program loans within eight weeks in order to meet the forgiveness requirements.

But many complained that they couldn't spend the money that fast if their restaurants and shops were still shut down. In early June, Congress changed the rules of the program -- giving small business owners more flexibility in how they spent the money and extending the eight-week period to 24 weeks.

Business owners welcomed the loosened restrictions. But the loan still provides only enough money to cover eight weeks' worth of expenses.

Help reach businesses most in need

If more funding is provided for small businesses, it may need to be structured differently. Demand for the Paycheck Protection Program loans fell sharply after the first month, leaving about $128 billion untapped with just a week left before the application window closes.

"We want to be much more targeted and focused on specific businesses and industries and workers that will have the hardest time coming back," Treasury Secretary Steven Mnuchin said Monday in an interview with NBC 6 Miami.

The accommodation and food services industries, some of the ones hardest hit by the economic fallout of the pandemic, had received just 8% of the loan money as of last week.

In a rush to get the money out as soon as possible, the program put few restrictions on who was eligible. As a result, many larger businesses were able to get loans faster than mom-and-pop shops, likely because they had existing relationships with banks that were already approved Small Business Administration lenders.

Those who are at the most risk of going under may have still missed out. Community development financial institutions, dedicated to serving low-income people and communities, struggled to process loans for their customers -- especially during the first round of funding.

On May 28, the Small Business Administration set aside $10 billion specifically for community development financial institutions and last week it launched a dedicated online tool to match businesses with community lenders.

But the Opportunity Finance Network, which represents community development financial institutions, says community lenders are going to need access to a lot more capital. It's calling for Congress to make a $1 billion investment in the Treasury Department's fund for those financial institutions.

A Democratic proposal for another stimulus spending bill, which passed the House last month, included that funding. But Republicans, who control the Senate, called that measure dead on arrival.

Extend other benefits instead

Congress could decide to end the Paycheck Protection Program and instead maintain other programs to help the economic recovery.

The Small Business Administration's Economic Injury Disaster Loans program is still available, and last week the Federal Reserve launched its new Main Street Lending program for small- and medium-sized businesses with up to 15,000 employees or up to $5 billion in annual revenue. But neither of those loans is forgivable.

The Trump administration and members of Congress have floated other policy proposals aimed stimulating the economy.

Democrats have also proposed a second round of stimulus payments sent directly to individuals, as well as extending the unemployment insurance benefit. Under the CARES Act, those on unemployment received an extra $600 a week from the federal government.

But that benefit is set to expire on July 31, and White House economic adviser Larry Kudlow said last week that it's unlikely it will be extended.

"I'm not going to negotiate out here. We are talking to the Hill formally, informally. I think you'll get discussions in earnest after the July Fourth recess," Kudlow told reporters later in the week.

He then ticked off provisions the President would like in any package, including a payroll tax cut, capital gains, a bonus for employees going back to work and targeted aid for industries like restaurants, entertainment, tourism and sports.