By Jacob Passy
President Donald Trump has signed legislation that Congress approved this week that will allocate a massive amount in funding to support the U.S. economy and workers through the coronavirus outbreak, and small businesses are among those that will benefit.
The hallmark of the $2 trillion stimulus package were one-time $1,200 direct payments to adults making up to $75,000. But the legislation also included a number of proposals aimed at supporting small businesses that have been hard hit as the pandemic has forced businesses to shutter in accordance with social-distancing orders from state and local officials across the country.
Some researchers have estimated that the federal government may need to supply up to $1.5 trillion in liquidity to businesses that employ 500 or fewer people if the coronavirus emergency to last three months. That’s obviously a much larger amount than the Senate plan currently provides.
The Senate’s plan currently supports American small businesses in the following ways, according to policy experts:
• A $350 billion forgivable loan program designed to ensure that small businesses do not lay off employees
• A 50% refundable payroll tax credit on worker wages will further incentivize businesses, including ones with fewer than 500 employees, to retain workers
• Looser net operating loss-reduction rules that will allow businesses to offset more
• A delay in employer-side payroll taxes for Social Security until 2021 and 2022
• Sole proprietors and other self-employed workers could be eligible for the expanded unemployment-insurance benefits the bill provides
• A portion of the $425 billion in funds appropriated for the Federal Reserve’s credit facilities will target small businesses
How does the $350 billion small-business loan program work?
The Small Business Administration, under the stimulus package, will oversee the Paycheck Protection Program, which will distribute $350 billion to small businesses that can be partially forgiven if the companies meet certain requirements. The loans will be available to companies with 500 or fewer employees.
“The SBA loans strike a balance between loans on favorable terms and grants by providing forgiveness to firms that use loaned funds for payroll, rent, mortgage interest, and utility payments,” said Garrett Watson, senior policy analyst at the Tax Foundation, a Washington, D.C.-based think tank.
There is a risk that some small businesses will be left behind. They include those that do not have access to a regular line of credit, work with rapidly changing staffs, or do not have a close working relationship with a lender.
Stan Veuger, American Enterprise Institute resident scholar
This ensures that the firms “have skin in the game” while also giving businesses a better chance at surviving the pandemic, he said.
Loans will be administered by banks and other lenders, which American Enterprise Institute resident scholar Stan Veuger said “will hopefully speed up the process.”
Businesses can receive loans up to $10 million, based on how much the company paid its employees between Jan. 1 and Feb. 29. The loans will carry an interest rate up to 4%. The bill provides for an expedited origination process.
If the business uses the loan funds for the approved purposes and maintains the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven, meaning the company will only need to pay back the interest accrued.
What could Congress could do to support small businesses more?
While policy experts acknowledged the SBA loan program would provide much needed support to small businesses to help them rehire and weather the crisis, they argued that lawmakers could take additional steps to support these companies.
“There is a risk that small businesses that do not have access to a regular line of credit, work with rapidly changing staffs, do not have a close working relationship with a lender, or have a cost structure that does not lend itself well to the conditions of forgivable loans program will be left behind,” Veuger told MarketWatch in an email.
Furthermore, Congress could extend further tax relief to support small businesses, Watson said, such as suspending the limit on the net interest deduction for firms. This would help companies that turn to debt to weather the coronavirus emergency.
Experts also argued that more could be done to help self-employed Americans and sole proprietors at this time.
“One big omission is that many small businesses will be able to delay payroll tax payments but independent contractors and gig economy workers will not be able to delay payments on self-employment taxes,” Watson said. “The IRS has delayed some quarterly estimated payment deadlines, but this is less generous than the delay imposed on payroll taxes in the bill.”
Coronavirus had infected at least 105,573 people in the U.S. as of Saturday lunchtime and killed at least 1,711 people, 450 of which were in New York City, according to Johns Hopkins University. The U.S. accounts for 17% of the global total, while New York State accounts for roughly 50% of the U.S. total. Worldwide, there were 621,636 confirmed cases of the virus and 28,658 reported deaths.