No matter how much economists, bureaucrats and politicians try to fix the problem, the latest PPP news about changes announced Feb. 22 by the Biden Administration means absolutely nothing to battered small businesses across the nation.
As an aside, I hope this article is completely wrong and I’m forced to come back and apologize to all interested parties in a month from now. Of course, I wrote something similar just two weeks ago, and I’ve told you about other problems with PPP, and those things are still true today.
Politicians and political advisors, please take note: The latest PPP news about changes you have made do not address the real problems with the program. Let’s look at some common-sense numbers:
- In the first round of PPP, the program ran out of $349 billion in about two weeks. Congress then added another $310 billion to the fund.
- Despite the early success, $147 billion of that additional $310 billion was never claimed. In fact, Congress should know better than everyone, since that body had to pass legislation that rescinded the remaining $147 billion and put it back in government coffers.
- In this second round of PPP, Congress allocated $249 billion for small businesses, changed criteria, and even set aside money strictly for minority-owned business. After six weeks of the program, only about $134 billion has been claimed.
Not only are business owners worried about getting punished, a number of them are also concerned that some of the funding won’t be forgiven. And you know what small businesses really don’t want right now? Any more debt.
None of those facts can be disputed. They are not political statements. If our politicians would think beyond their enclaves in D.C., maybe they’d come to some logical conclusions.
PPP news doesn’t address issues
What conclusions can we make about this second round of PPP? Consider this:
- Politicians have argued that money wasn’t accessible to the smallest and minority-owned businesses in the first round. If that’s the case, can anyone explain why there was $147 billion remaining?
- If there was all that money left over from the first round, did the smallest and minority-owned businesses get rejected or ignored? Finding that answer is nearly impossible. In fact, Politico had an article that said the Treasury’s reporting was an absolute debacle. Isn’t it important to know how many businesses were rejected?
- Why are we having such a hard time giving away this second round of “forgivable” money? Has anyone in D.C. considered there may be other issues that have nothing to do with access?
The real problems with PPP
If you want to know what’s really wrong, I can give you exact reasons, and it really has nothing to do with small businesses being turned away from PPP loans. Our company works with thousands of small businesses each year, and we have heard from very few who couldn’t get a meeting with a lender.
No, the problems are difficult to solve and that’s probably the reason the Trump Administration and now the Biden Administration won’t address them.
Problem 1: Criteria was wrong
When Congress passed this second version of PPP, they set the qualifier that a business had to show a loss of 25 percent of revenue in any given quarter of 2020 compared to the same quarter of 2019. Why such an arbitrary and big number?
According to one survey, small businesses in North America run at a profit margin of about 7 percent. So if a business lost 15 or 20 percent of revenue, and that business happens to increase margins the higher the revenue (that’s called “scale” and it happens a lot), then they’re as dead as a business that lost 30 percent of its revenue.
Problem 2: SMBs don’t have accountants
There is little data out there, but a survey published a couple of years ago said 45 percent of small businesses don’t have an accountant or a bookkeeper.
Guess what? The smaller the size of your business, and the fewer employees you have, the more likely you are to not have someone who manages your books. And if you don’t have someone properly filing payroll taxes and year-end taxes, you won’t have the forms needed to apply for PPP.
Guess what else? The businesses the Biden Administration wants to target with this latest PPP news are the smallest among us. This is why the changes will not work.
Applying for these PPP loans is not easy work. My company has a CFO and we still have had issues with two of our sister companies. Imagine what it’s like for a 4-person shop with a messy check register.
Problem 3: There’s a lack of trust in big brother
This isn’t a political statement, but if we’re talking about the smallest of small businesses, and based on Problem 2, has Congress ever considered that many small businesses don’t necessarily want to turn over their financials to the federal government?
It’s not that these businesses are trying to commit fraud. It’s that they don’t have a full-time bookkeeper, they’re concerned about turning in documents that might get them in further trouble. Many are worried they may get slapped with a big tax bill if they apply for this loan.
And here’s the double-whammy. Not only are business owners worried about getting punished, a number of them are also concerned that some of the funding won’t be forgiven. And you know what small businesses really don’t want right now? Any more debt.
Problem 4: Forgiveness is way too hard
After the first round of PPP, businesses had to fill out applications to receive forgiveness. These things were monstrous, which takes us back to Problem 2. Half of small businesses don’t have accountants.
The misery of filling out the forgiveness applications in the first round has absolutely discouraged small businesses from applying for the second round.
There may not be a solution to the problem, as we have to stop fraud and we have to account for the money. But it can’t be lost on administrators of PPP that this served as a detriment to reaching the smallest and minority-owned businesses most in need of this stimulus.
As the PPP news continues to roll over the next week or two, members of Congress and the Biden Administration would do well to at least consider ways we can overcome these problems. Setting money into different pots, doing a PR campaign to attract the most vulnerable businesses, and adding folks like convicted (not for fraud) felons and Green Card holders will not solve the underlying problems.
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Jonathan McElvy is the CEO of McElvy Partners. His company includes the Greensheet, The Leader, Fort Bend Star, Charlotte Media Group, Coastal Bend Publishing and Texas Printers. He has managed and owned small businesses for 20 years. If your business would like to talk more about your individual needs, click HERE for contact information. You can follow him on Twitter @mcelvy.