Were the PPP & EIDL Effective for Small Businesses?

By Alice Zhang


Small or local businesses often reflect the unique character of their cities and towns. But small businesses are struggling to remain afloat due to the onset of the coronavirus pandemic and various shutdowns. When Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the over 2 trillion dollar stimulus package, they made sure to provide assistance to small businesses. With the expiration of the CARES Act, business owners are growing increasingly concerned about their futures. While Congress debates over the next stimulus package, it is important to consider the successes and failures of the CARES Act in sufficiently supporting small businesses. While the loan programs provided quick relief to millions of companies, conditions and requirements can be improved in order to best meet business needs.


The CARES Act allowed banks to provide federally backed loans to small businesses through the Paycheck Protection Program (PPP). Originally allotted 350 billion dollars, the program received an additional 310 billion dollars in April. Loans are forgiven if businesses spend at least 60 percent of the loans on payroll costs, with the remaining 40 percent used in other areas such as rent or utilities.


While the purpose of the program was to prevent mass layoffs in small businesses, the program often left out many businesses. Larger businesses that met the PPP’s requirements depleted the funds. Small business owners accused banks of prioritizing larger businesses, filing lawsuits after the initial 350 billion dollar fund ran out in 13 days. Even publicly traded companies, such as Quantum and Universal Stainless, received millions in loans. While one company -- MiMedx -- promised to repay the loan, most other companies kept the 10 million dollars. While the loans saved jobs that might have otherwise been cut, small businesses were nevertheless unable to receive loans.


Additionally, the structure of the program was inflexible. Fixed costs like rent and utilities are expensive and just as critical to the survival of many of these businesses. For instance, storing inventory might require significant funds that businesses do not currently have. While understandable considering the purpose of the PPP is to maintain payrolls rather than fund all aspects of running a business, businesses still require support on other fronts.


To that end, while Congress has adjourned before coming to an agreement for the next stimulus package, the proposed bills both make a few changes to the existing PPP. The Health, Economic Assistance, Liability Protection and Schools (HEALS) Act would forgive loans spent on other expenses including “software and cloud computing services, essential supplies, and repairs resulting from rioting.” The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act however, would eliminate the requirement for 60% of the loans to be spent on payroll, among other changes.


On the other hand, the Small Business Administration (SBA) provides the Emergency Injury Disaster Loan (EIDL). However, unlike the PPP, these loans must be repaid within 30 years, with an interest rate of 3.75 percent. In response to the pandemic, Congress allocated 20 billion dollars to an advance payment program, ultimately funding nearly six million small businesses and their 30.5 million employees. The advance payment offered 1,000 dollars per employee -- with a maximum of 10,000 dollars -- that would not need to be repaid. Applicants received these advance payments regardless of whether or not their loan applications were approved.


EIDL funds are much more flexible than PPP loans because the EIDL is designed to support businesses through disaster. Not only can businesses determine how best to spend that money, they are not forced to spend the money in a certain time frame. Unfortunately, the administration capped loans at 150,000 dollars. Many businesses previously counting on receiving larger loans were left struggling to cover all their expenses.


Additionally, the EIDL Advance Program was met with rampant fraud. Already a small administration, the SBA attempted to rapidly address business needs during the economic downturn. However, in order to speed up distributing advance payments, the SBA waived requirements such as submitting tax returns and undergoing credit checks. This paved the way for millions of loan applications to be pushed through, resulting in handing out an estimated 250 million dollars to potentially ineligible borrowers.


Even with the two programs, smaller businesses were often left behind. Future programs should work to address these gaps. Whether that be setting aside specific funds or clarifying rules and requirements, policies need to be implemented in order to ensure local businesses receive sufficient aid.


Small businesses are integral to their communities, whether it be an economic or cultural standpoint. While the PPP and EIDL both supported businesses, significant issues must be addressed if we want to properly assist local businesses. Utilizing the feedback from government watchdogs, advocacy groups, and business owners, Congress can pass a bill that sufficiently responds to these concerns and supports these businesses through the pandemic.

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