Federal stimulus would give $367B in loans to small businesses
Photo | Grant Welker
Sole Proprietor, a popular Worcester seafood restaurant, has temporarily closed because of the coronavirus outbreak.
Update: The U.S. Senate passed the measure unanimously on Wednesday night.
Early Wednesday morning, U.S. Senate leaders and the White House struck a deal on a $2-trillion stimulus bill to help stir economic activity during the coronavirus pandemic, including a provision to help businesses with less than 500 employees retain staff and pay bills.
The monies include $367 million for U.S. Small Business Administration loans to small businesses, according to a report from The Hill. Because the Senate wasn’t set to approve the measure until Wednesday afternoon, the full text of the bill wasn’t yet available, so details on its provisions were still light as of Wednesday morning.
However, earlier versions of the bill allowed small businesses and nonprofits to obtain loans of up to $10 million to pay for key expenses, including payroll, health insurance, mortgage, rent and pre-existing debt payments. The loans would cover expenses from March 1 to June 30.
Assuming that language is still in there, the portion of the loan used to cover payroll and payments on pre-existing debt would be forgiven if businesses retain their employee and payroll levels in the four-month period between March and June.
The Hill reported the Senate was expected to pass the bill on Wednesday afternoon. The House of Representatives could technically approve it on Wednesday as well, although that would require all of its members to agree to the measure.
According to the office of U.S. Senator Chuck Schumer of New York, the Democratic minority leader, also included in the bill is $17 billion for the SBA to cover six months of payments for small businesses with existing SBA loans.
[Related: Mass. coronavirus cases top 1,100, Worcester County cases rise 74%]
The bill includes a retention tax credit for employers to encourage businesses to keep workers on payroll throughout the crisis, and extend unemployment insurance from three months to four, according to Schumer's office. Rent, mortgage and utility costs will also be eligible for SBA loan forgiveness.
NBC News reported the bill includes $367 billion in loans to small businesses, along with unemployment benefits increasing the maximum benefit by an extra $600 per week, and $500 billion in loans for larger industries.
Nichols College economics professor Hans Despain said he was encouraged by the bill but said it is still far too little, particularly in helping small businesses and households. The $600 weekly maximum for unemployment is too small for both small- and medium-sized businesses, he said.
"The unemployment compensation is both support for American households and sales for firms," he said.
"This is likely to be a 'L-shaped' recovery and not 'V-shaped' recovery," Despain added, describing a tougher recovery even once businesses are able to get back to operating. "The right policy can help make it a long 'U-shaped' recovery. Although this current bill is encouraging, it is not enough to get us to the 'U-shape' yet."
Despain suggested grant opportunities for entrepreneurs and small businesses owners that would not only keep businesses alive but restart entrepreneurship activity.
"This could obviously develop after the first bill, but we will need to push Congress here," Despain said.
[Related: Worcester County has traveled 42% less during pandemic]
To Frank Hoy, a business professor at Worcester Polytechnic Institute, the stimulus is a stopgap measure at best. While unemployment benefits could prove crucial to those laid off from work, that money will likely immediately go to essentials such as food and health care needs, he said.
Hoy was critical of how little attention he said has been paid to small businesses — and more on airlines, oil and financial services — while The New York Times reported that restaurant industry experts estimate that roughly 75% of eateries that are temporarily closed today could go out of business entirely.
"The loan proposals for small firms are questionable in the long run for their survival. Many of these companies operate on the margin and may struggle to pay off debt whenever the economy approaches the whatever the new normal will be," Hoy said. "It is almost certain that something different will be needed to help businesses, small and large, readjust after the virus is under control."
Others nationally have also warned the aid may be too small for the severity of the crisis. Jason Furman, the chairman of the federal Council of Economic Advisers during the Obama Administration, told Bloomberg news that further stimulus will likely be needed.
“I’ve never seen Congress move so fast to do something so large," he said. "Unfortunately, the problem may be larger and faster."
[Related: Worcester community coronavirus response fund up to $2.1M]
Jim Tankersley, writing a new analysis for The New York Times, also called the deal potentially inadequate.
"The coronavirus response deal that congressional leaders struck early Wednesday morning will get a lot of checks in the mail, but they’ll soothe only a few months of financial pain," he said. "If the outbreak and the disruptions continue through summer, lawmakers will need to spend even more."
The stock market has reacted warmly to the expected deal. The Dow Jones Industrial Average climbed 11.4% on Tuesday and another more than 2% through Wednesday morning.
That follows a period of a few weeks in which the market fell far faster than before even the Great Recession. Investment firm J.P. Morgan has predicted a 14% contracting in the United States economy in the second quarter, and Goldman Sachs forecasted a 24% drop.
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