Coronavirus: Why Is It So Hard To Aid Small Businesses Hurt By A Disaster?

Similar themes in coronavirus aid

To combat the economic impact of the coronavirus, in late March Congress passed the $349 billion Paycheck Protection Program in addition to replenishing the coffers of the SBA’s disaster loan fund.

The idea with the new program is that small businesses, especially those that have had to close during the crisis, can get very low-interest loans that turn into grants as long as they meet certain conditions, like not laying off staff.

After the money was drained in two weeks – and reports surfaced of larger companies getting some of the aid – Congress topped it off with $310 billion and tightened its restrictions on which businesses can use it.

But so far, smaller companies seem to be encountering the same problems I uncovered following Hurricane Ike.

For example, businesses are still finding it difficult to apply for assistance. Unclear guidelines led to confusion in how the process would be rolled out and executed, even in the second round.

Like after Hurricane Ike, businesses with existing relationships with banks, such as having open lines of credit, seem to be benefiting. The assistance is grounded in a loan program, which favors larger businesses. This has the potential to be exacerbated by the high competition for funds and the need for businesses to apply quickly.

And although COVID-19 assistance is different from previous disasters in that the loans are potentially forgivable, they are still loans that – if not turned into grants – must be paid back and could compound the issues businesses are already facing from a likely sharp drop in revenue.

The Treasury Department’s vow to audit who took out loans to ensure recipients adhere to the rules will help, as will Congress’ decision to direct 10% of the new funds to community banks. Local lenders have been quicker to lend and motivated to help their communities.

Unfortunately, if history is any guide, it may not be enough to ensure these small businesses are getting the help they desperately need.

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This article is republished from The Conversation under a Creative Commons license.

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Moon Kil Woong 3 months ago Contributor's comment

Because the money is flowing to the banks that fund big companies to keep them from defaulting. Also, because of if not outright government corruption, an entrenched bias to big business which writes bills and has the administration cater to the wealthy. It is good this is coming to light because something should be done about this. It hurts the free market system and prevents growth and innovation. Sadly this money will go to airlines, cruise ships, fast food chains,and hotels and not to others. Thus small R&D, technology, diverse restaurants, and ways of housing the poor will be overlooked and not funded.