The CARES Act was an ambitious attempt by congress to extend a safety net to small businesses while they cope with the hardships from the pandemic. Even though it was a $1.8 trillion dollar relief package, many small businesses did not apply to be recipients of the aid. If you are a small business owner, should you consider applying for the next wave of relief?
The CARES Act allocated $349 billion dollars to help small businesses through the Paycheck Protection Plan (also known as PPP), which offered business loans that were forgivable to make sure payroll was covered at least for eight weeks after the loan was approved and signed. However, the problem was that PPP had been structured to be a “first come first serve” program. That is, the small business owners who logged in first had the most chances of getting a loan rather than it being a program built upon necessity.
Further, many scholars have shown that small businesses that had previous relationships with the banks that were in charge of distributing these loans were more likely to get approved rather than it being a function of credit risk and need.
These two problems were of major criticism by many who argue that the CARES Act was an ambitious, yet flawed approach to providing aid to small businesses that really needed it. The CARES Act was also seen by small business owners as aid they were not elegible to receive, so many did not even apply at the first place. According to a recent poll done by CNBC, only 13% of the 45% who applied for a loan were approved. In other words, 55% of small business owners who were surveyed by CNBC did not even apply for a loan through the CARES Act.
Now that we are on the midst of a new relief package being approved by congress that is poised to be the biggest relief bill ever passed, it is your opportunity to get the help you much need and deserve. Rather than staying on the sidelines while many get a hold of a lifeline to save their business, you must take this chance. Here’s how:
First, PPP will be extended by the Biden administration. This means that you’ll get an opportunity to apply for it again. Now, you already know that this program was set on a ‘first come first serve’ basis so make sure you check regularly on the website to see if funds have been replenished.
Second, Biden will propose an additional $15 billion to be distributed to small businesses employers, as well as $35 billion in low-interest loans. In other words, more attention is being given to small businesses and funds are on their way so the likelyhood for you to receive the aid necessary increased.
Third, scholars have proposed to remove the ‘first come first serve’ structure of the loan approvals, as well as the bias banks have when it comes to prioritize loan applications that have previous relationships with them and instead accept loan applications by degree of need and to put on top of the list small businesses owned by minorities, women, and veterans.
The last point is especially good news because it indicates that lessons were learned with the CARES Act and it shows that scholars proposed solutions to provide a much needed safety net for minority small business owners who were disproportionally impacted by the pandemic. Further, the Biden administration has signaled that it will put more attention towards them as he has nominated Isabel Guzman to be the new SBA administrator. Guzman was the Director of California’s Office of Small Business Advocate, and during her time there she made sure that $500 million was deployed in relief aid and most of it distributed to the most vulnerable businesses in underprivileged communities.
All in all, the new relief fund promises to have been built upon the lessons learned with the CARES Act. It is now your opportunity as a small business owner to get the help you need. Don’t stay on the sidelines. In the next survey by CNBC, hopefully we’ll see that the number of people who applied for a loan increased — and got their loan approved — by a huge margin. Now that there is evidence to see what went wrong with the CARES Act and what worked, the new relief package has the potential to extend a lifeline to your business.
