Lawmakers are gearing up to funnel more money into the new Paycheck Protection Program, which makes loans to small businesses to cover payroll and expenses during the Coronavirus pandemic. The program has been flooded by applications, with one bank seeing more than 85,000 customers apply for $22.2 billion on the first day.
Small businesses are a key component of the American economy, accounting for 44 percent of gross domestic product, 47 percent of private sector employment, and 41 percent of private-sector payroll. But it turns out that it’s not so easy to get $350 billion in loans out to businesses in a hurry. The Small Business Administration (SBA) has been overwhelmed and banks are scrambling to set up systems for processing the huge volume of loan demands.
That’s why in addition to enlarging the Paycheck Protection Program, policymakers should adopt innovative ways to get relief to millions of small business owners.
One way to accelerate lending is to enlist private companies that work with small businesses everyday. Last week, the SBA approved fintech companies like PayPal, Intuit, and Square to participate in the Paycheck Protection Program. These companies have both the virtual infrastructure necessary and the ability to quickly reach small business owners to deliver the loans. Fintech trade group Financial Innovation Now, whose members include those three companies, estimates that its members “could rapidly disburse approximately $100 billion in capital to vulnerable small businesses, in many cases within weeks.”
While allowing fintech companies to participate in the program will expedite the funds to small businesses and alleviate pressure on the banks, the application process has gotten off to a rocky start with the SBA experiencing system outages. Policymakers should seek to smooth the application process by providing additional support to the SBA.
Tax and regulatory relief can also be a lifeline to small businesses. Lawmakers should include rules discouraging state and local governments from imposing costly and burdensome taxes and regulations on small businesses. In a particularly egregious example, Philadelphia requires new businesses to pre-pay the City’s Business Income and Receipts Tax beginning on their second year tax return — before many small enterprises turn profitable. And while some states have already delayed their business tax filing and payment deadlines until mid-summer, they should consider allowing payment deferral until the following year’s tax deadline and waiving associated interest and fees.
On the regulatory front, a 2017 report by the National Small Business Association found the average small business owner spends $12,000 a year on regulations, with nearly one in three spending 40 hours or more a year dealing with state and local government regulation. Tax and regulatory abatements will be a critical component of state and local strategies aimed at helping small businesses recover from the crisis. For instance, under a “One Day to Open” initiative, businesses whose licenses expired during the pandemic or are set to expire should be allowed to delay renewal for a year from their first day of reopening.
Lastly, governments should prioritize the digitization of all aspects of starting and running a business. That will alleviate pressure on administrative systems and save time and money now and in the future. Estonia’s government has digitized many aspects of government-citizen interaction including voting, tax filing, and business registration. It is estimated digitizing these processes saves the country two percent of its Gross Domestic Product a year in salaries and expenses, roughly what it pays to meet the threshold for NATO protection.
Tax and regulatory relief and digitization are essential to ensuring we get the most bang for our buck with the resources devoted to helping small businesses recover from the pandemic.