An Open Letter to Congress: The PPP Can (and Ought to) Be Higher

As the US prepares for another round of economic activity, which is likely to include another attempt at the Paycheck Protection Program, a loan program designed to keep the workforce, small business problems are far from over. Once the next incentive is approved, confusion and uncertainty instead of convenience will likely be the first reaction from the business community and those in charge of managing the program.

To date, the government is trying to answer important questions that small business owners and banks have about the program. They are struggling to find answers to these questions because they either did not consider them when the program was first published or they realized that their first answers no longer fit the current economic situation. Fraud, lending, and expense deductibility issues have plagued the program from the start. To improve the next PPP rollout, here are five suggestions that emerged from the panel discussion on mobilizing economic aid supporters that I hosted last week:

  1. Targeted help to actual small businesses in the hardest hit industries. Focus on the local restaurants, gyms, and hotels with sales less than $ 1 million and fewer than 500 employees. Many of these smaller companies didn’t have the same resources or knowledge base to get PPP funding before they ran out of money. These companies also need a lot less money to stay afloat. For them, a loan of as much as $ 10,000 could mean the difference between closing the doors and keeping them open.
  2. Make application procedures and requirements the same for all banks. Streamline the application processes to avoid double checking for many borrowers. Borrowers were initially required to certify that they needed the money due to economic uncertainties and were then asked months later to prove the need for the loan if they took on more than $ 2 million. The verification of the need for the loan only needs to be done once at the beginning. Many may argue that streamlining the application process will increase fraud, but we also need to think about the companies that are just days away from closing their doors. There is a tradeoff between cheating and speed and we have to find the right balance.
  3. We need clear guidelines on lending, tax liability and credit deductibility. While PPP money is not considered taxable income, the IRS has stated that expenses paid for with issued PPP funds cannot be counted as tax-deductible expenses. Theoretically, all PPP funds given out ultimately increase a company’s income and thus its tax liability. All taxes due depend on the company’s total taxable income, which now includes PPP funds. This means that some companies may appear to have made profits when in reality they have not. That means they may owe taxes – that’s more than 25 percent of the total proceeds of their loan.
  4. Before starting a new program, we need to provide the banks with liquidity. This is not government money; These are the bank’s balance sheets. Small banks have a limited amount of capital that they can raise against such programs. We need a system where the Federal Reserve can quickly transfer liquidity to banks so they have the liquidity they need to fund loans.
  5. Encourage banks to provide these loans to companies that are not necessarily their customers. Large institutional banks lent a lot, but they had no incentive to lend to companies that were not yet their customers. Since banks make more money on larger loans, they have had little incentive to get all actual small business loans. This meant that all of the smaller banks were overflowing with loan applications and didn’t have the liquidity or capacity to handle them. Let these big institutional banks partner with companies that have sales of $ 1 million and less and give them priority.

There will certainly be new guidelines for the second round of PPP, and it will take some time for banks and small business owners to figure out exactly what this means for them. It’s a clunky and messy process that is always taking more time than we think, which is why we need to get it out now. More and more small businesses are closing their doors every day, and far more will close if we wait for this political chaos to pass before we take action. Small business owners will have to climb a steep hill in the coming months and lawmakers can only give them the support they really need.

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