Editor’s Note: Julie Margetta Morgan is the vice president of research at the Roosevelt Institute. Bharat Ramamurti is the managing director of the corporate power program at the Roosevelt Institute. The opinions expressed in this commentary are their own.
Last week, the American public found out what kind of businesses received the bulk of the government-backed loans offered to small businesses in the first months of the Covid-19 pandemic through the Paycheck Protection Program (PPP). They also discovered which celebrities took part in the program and which Trump allies received loans.
But the focus on high-profile borrowers like Kanye West distracts from the bigger picture: The real PPP scandal is not who received help, but who didn’t. The PPP was a flawed program that fell short in helping small businesses and workers, and our economy continues to suffer as a result.
When the Covid-19 pandemic hit the United States earlier this year, many businesses were forced to close indefinitely, and they had to make tough choices about what to do for their workers. The PPP, created through the CARES Act, provided these businesses with the option to receive low-interest loans to cover payroll and a limited portion of other expenses. The loans could convert to grants if businesses used the bulk of the money to retain workers on their payrolls.
Keeping small businesses afloat and workers employed were vitally important goals for policymakers’ economic response to Covid-19, and the PPP could have helped the country meet them. But, by design, it was problematic from the very beginning. Instead of offering direct support to businesses, Congress chose to run the program through banks and offered banks bigger fees for issuing bigger loans, even though the loans were all fully backed by the government and effectively risk-free.
As a result, businesses that had strong relationships with banks had easier access, and banks had a strong financial incentive to move businesses seeking bigger loans to the front of the line. Black and Brown business owners, who are less likely to have strong banking ties and more likely to operate smaller businesses seeking smaller loans due to structural racism, were disadvantaged. According to one survey, just 12% of Black and Brown business owners who applied for PPP loans received them.
The PPP undoubtedly helped, but given the scale of the economic crisis today, Congress could and should have chosen a more effective alternative. Though the job market has made big strides in recent months, more than 20 million jobs were lost in April alone, the unemployment rate remains in the double digits and Black unemployment is even higher than the overall unemployment rate. Researchers estimate that 100,000 small businesses have shuttered permanently – and given that the financial suffering caused by Covid-19 is not nearly over, these numbers seem likely to climb higher.
While people might be caught up scrutinizing who exactly benefited from PPP loans, it is far more important to focus on how we can address the very real challenges still threatening workers and small businesses. The country’s economy already suffers from dangerous levels of monopoly power that drive up prices, hurt workers and inhibit innovation and growth.
Widespread closure of small businesses would only further increase corporate consolidation. With virus cases surging again in many parts of the country – threatening to put a stop to efforts to “reopen” the economy – Congress must rebound from the flawed approach embodied by the PPP and provide additional support to small businesses and their workers, and fast.
To do this, the government should step in and directly take over payroll obligations for companies that have been hard hit by our current economic crisis. By expanding existing tax credits that offer companies support for their payroll obligations, Congress can quickly provide hard-hit small businesses with funds to retain and rehire their workers.
By operating through the tax system, such proposals will provide relief to every company that needs it and ensure that government support is used to keep people employed. This should be paired with continued support for expanded unemployment insurance to ensure that workers get support regardless of their employers’ decisions.
Second, we should provide specific, targeted grants to Black- and Latinx-owned small businesses, which have done particularly poorly with PPP. Finally, we should provide grants (or, at worst, low-interest loans) to small businesses to help cover non-payroll costs, like rent, that might be driving them out of business.
We can improve upon the PPP and stop thousands of small businesses from failing and millions more workers from being left behind. That – not the latest celebrity brand getting PPP funds – should be Congress’ focus in the weeks ahead.
