The Paycheque Protection Program (PPP) offers eight weeks of capital assistance to small businesses to maintain their payroll during the COVID-19 pandemic. The PPP is part of the $ 2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act) that President Trump signed into law on March 27. A work document by the National Bureau of Economic Research found that PPP loans resulted in an increase of 14 to 30 percentage points in a company’s expected survival rate and a positive and imprecise effect on employment.
The Small Business Association (SBA) cancel loans for employee expenses if those employees are kept on the payroll during the pandemic. Employers can also keep the money if it is used for normal business expenses. Those eligible to apply for help are companies with less than 500 employees, sole proprietorships, independent contractors and self-employed workers. Approximately $ 521 billion was sent to 4.9 million businesses, including more than 600,000 businesses that received $ 150,000 in loans or more each. The SBA said that small businesses generate 44% of US economic activity.
While the program temporarily put employees back on the payroll, a bankruptcy tidal wave come. Of the 5.1 million active companies listed on Yelp, 132,580 are still closed due to pandemic restrictions. Among business closures, 72,842, or 55%, have closed permanently. Justin Norman, vice president of data science at Yelp, said the federal government should offer more help for small businesses to avoid the risk of further closures of small businesses.
A July 7e investigation by the National Federation of Independent Business Research Centers (NFIB) found that “about 22% of PPP loan borrowers have or expect to have to lay off one or more employees after using their loan. This figure is up from 14% in mid-June. As business owners use the rest of their loan balance, they find that economic conditions are unable to support the current staff levels that were previously supported by the PPP loan.
In addition, a Goldman Sachs investigation found that 84 percent of small businesses that received PPP money would exhaust their funding by the first week of August, and only 16 percent are very confident they can maintain their payrolls without further government relief. Only 37% of small businesses say they can survive another wave of shutdown restrictions and 63% say their revenues are only 75% of their pre-COVID income levels.
Many businesses may not meet pre-COVID operating levels or support “re-payrolling” due to a combination of state-ordered social distancing and a collapse in consumer demand. Initially, the SBA stipulated that a PPP loan would only be canceled if a majority of it was used to pay employee salaries for eight weeks, which many companies chose to do. Washington State, despite the majority other states choosing to waive the requirement to replenish their own unemployment trust fund accounts, only waived the increased requirement if there was a COVID-19 infection at the company site.
The PPP program has experienced several notable changes since its launch in April. The requirement that 75% of the money must be used for salary costs to be eligible for pardon has been reduced to 60%. In addition, the time limit during which the money must be spent has been extended by eight to 24 weeks, helping to alleviate some of the financial burdens on small businesses.
In addition to trying to maintain corporate payrolls, small businesses will likely use P3 money to offset inflation from a weakened dollar over the next 24 months. Inflation is higher than expected and with an interest rate close to zero, the Federal Reserve is should increase interest rates. $ 2 trillion in newly printed silver contributed to the worst month-long decline in the dollar value in 10 years, in real life 10-year Treasury yields fell to minus 0.97%.
Even for companies whose turnover has not changed in recent months, the impact on turnover is likely in the long term. Many companies took out the loan to “get over the bump,” hoping the shutdown rules would ease by the fall. Some small businesses, in particular Restaurants, remain open despite new restrictions. Faced with the choice of being arrested and fined by the state or going bankrupt, many choose to stay open.
The last Washington Jobs Report, reports that the unemployment rate in Washington is 9.8%, 1.3% lower than the US average. At least 4,500 Seattle businesses closed temporarily or permanently during the pandemic. For example, in La Conner, nine companies have closed permanently or are in the process of closing. All but one cited COVID-19 as the main reason for their closures. The Washington Department of Commerce has provided grants to very small businesses through the Washington Small Business Grants Program. More 1,500 Washington companies are expected to receive more than $ 9.7 million in aid, saving 5,500 jobs, according to the government.
July 28e, Governor Inslee announced he had stopped easing restrictions and allowed counties to move to the next phase of opening indefinitely. As of July 30, there is additional restrictions on restaurants, taverns, breweries, wineries and distilleries, including ending alcohol service at 10 p.m., reducing guest occupancy rate to 50 percent, reducing table size to five and the ban on seats in the bar.
The indefinite closures of thousands of Washington businesses are causing real hardship for employers and working families. If closures continue into the fall, expect to see another wave of bankruptcies and layoffs hit small businesses in Washington and across the country.