The government’s $2 trillion stimulus package includes relief for small businesses that are hurting due to the coronavirus pandemic. Among the stimulus provisions are more than $350 billion in loans and payroll tax relief destined to help small and medium firms, those who are self-employed as well as freelancers and gig workers.
Tom Schryver is visiting lecturer at the SC Johnson College of Business at Cornell University where he teaches entrepreneurship and business strategy. He says that in helping small businesses, the government is walking a line between getting things done fast and offering the perfect solutions.
“The economic injury disaster loan program by the Small Business Administration (SBA) provides loan amounts of up to $2 million; and provisions that provide exceptions to equity-holders needing to personally guarantee the loan. The SBA is staffed with great, hard-working people, but typical SBA loan programs are administered by the banks. It will be a heavy lift for the SBA to be on the front lines with all these potential borrowers, and it remains to be seen if they can scale up fast enough.
“Also, borrowers must be able to show ‘economic injury’ from the pandemic and the funds need to be used for payroll, working capital and debt repayment that would otherwise be stuck without the loan. What we’re seeing are two types of companies – in one case firms are indeed struggling to hold on, and these kinds of loans will help them keep the lights on and hopefully avoid layoffs, at least avoid them for longer. The other type are companies trying to figure out how to deal with enormous upticks in volume, if they’re in home delivery or e-commerce businesses, for example. These businesses need capital for growth but are not of the type that are likely to be able to show ‘economic injury’ and therefore will have difficulty accessing these loans.
“At the end of the day, this crisis is moving very fast, the impacts are large, and we see governments doing the best they can to deploy what are, at best, blunt instruments. Over time, I’m confident that programs will adapt and become more nuanced to best fit those in need, but one can definitely see policy being made with a philosophy of ‘perfect is the enemy of done’ – and, given the depth of the need of so many small businesses, that seems like an appropriate trade-off.”