Editor’s Note: Aman Bhutani is CEO of GoDaddy. The opinions expressed in this commentary are his own.
When the federal government announced the Payroll Protection Program a few months after the pandemic began in 2020, many microbusiness owners – those with just one to 10 employees – assumed they’d have little problem securing one of the interest-free loans. Many of them were disappointed.
In fact, nearly 79% of the PPP funds distributed were for loans greater than $100,000, and more than one-third of those loans were for between $1 and $5 million or greater – much larger than a typical microbusiness owner needed to survive. One of the biggest hurdles microbusinesses faced in getting loans approved was connecting with the traditional big banks that did most of the lending.
At the end of January, more than a third of small businesses had closed in the United States compared with a year earlier, according to data from Opportunity Insights Economic Tracker. And minority-owned business owners were hit especially hard. In the last quarter of 2020, business activity for minority-owned businesses fell by 10%, versus 6% for all small businesses.
Fortunately, some of these inequities are being addressed in the second round of PPP lending, which started on January 12. This time, $40 billion was earmarked specifically for companies with fewer than 10 employees, and the Small Business Administration has adjusted its lending process to better serve companies owned by women, racial minorities and other under-represented groups.
The good news is that the SBA is getting more money to more microbusinesses, more quickly.
As of January 31, $20 billion had been disbursed, and approval rates had risen substantially. The bad news is that with more than half of that $40 billion already gone, microbusinesses will soon need to compete with larger companies who often have strong partnerships with the banks that oversee approving these loans – as we saw with the first PPP distribution.
More still needs to be done. I urge Congress to pass the Biden Administration’s $1.9 trillion American Rescue Plan, which includes $15 billion in direct grants and $35 billion for lending organizations serving small businesses. But access to capital isn’t enough. Federal, state and local governments should also invest in affordable broadband internet, marketing and technical skills training and portable health benefit programs to help owners of microbusinesses thrive.
A research effort between GoDaddy and economists and political scientists at UCLA Anderson, the University of Arizona and the University of Iowa to quantify the economic impact of online microbusinesses, uncovered consistent and clear results: The more online ventures – microbusinesses, nonprofits and personal websites – a community has, the more resilient and prosperous it is. Specifically, the research shows that microbusinesses with an active web presence led to lower unemployment, greater job creation and higher household incomes.
To realize these benefits, a little bit of funding goes a long way. The average PPP loan for a microbusiness with less than 10 employees so far this year is around $28,000, versus $81,000 for all other companies.
And according to our research, investments that help borrowers in underserved communities could have a particularly outsized economic impact. For example, Black entrepreneurs who run microbusinesses as a side hustle are 2.5 times more likely than others to want to turn their work into a main source of income.
As always, timing matters. While companies of all sizes have struggled during the pandemic, many microbusinesses lack the cash and savings to survive until the threat from Covid-19 subsides. And, given that we now know these entrepreneurs make our communities and economy stronger, it would be tragic to miss another opportunity to get them the help they need.