The Latest Round of PPP Is Critical For Small Businesses — But It Won’t Fix Their Long-Term Problems

For businesses struggling to stay afloat amid a grueling economic crisis borne of the coronavirus pandemic, a lifeline is on the way — although it may not much be more than that.

After a contentious few weeks, President Donald Trump on Sunday signed into law a sweeping stimulus bill, the Consolidated Appropriations Act, which renews the Paycheck Protection Program (PPP) that was created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) earlier in the health crisis.

The $900 billion legislative package — which also includes another round of direct payments to individuals as well as additional weekly unemployment benefits — allocates $284.45 billion for PPP loans to eligible new borrowers as well as qualifying borrowers that already received a loan under the first round of PPP.

While the initial round PPP of funding was rife with challenges, some of which were due to the urgency with which the funds were doled out, experts say they are cautiously optimistic that the latest provision — with its enhanced measures — will prop up the businesses that need it most.

“On the first round, a lot of very small and minority-owned businesses never qualified — for a variety of reasons. This bill targets those kinds of firms, and shuts out all big, and publicly held companies,” explained Andi Gray, president of business consulting firm Strategy Leaders. “[The new round also] broadens some of the deductions that a small business can take — which could be good news …  Formerly, the IRS had disallowed deductions for expenses paid with forgiven PPP loan proceeds, these disallowed expenses are now eligible for tax deduction.”

Ben Johnston, chief operating officer at Kapitus, which provides capital to small businesses, said he, too, believes the new PPP program is better targeted to the small businesses that greatly need financial support and “will limit the amount of money paid to larger, deeper-pocketed businesses that received so much of it in the first round of PPP last spring.”

Among the new benefits, Johnston called out the fact that loan forgiveness has expanded to include certain operating costs, property damage expenses, supplier costs and worker protection expenses in addition to the items forgiven last time such as payroll, rent, mortgage interest and utilities. Johnston also noted that the loan forgiveness period has been extended from 8 weeks to a period of the borrower’s choosing between 8 and 24 weeks.

Still, both experts warned of the limitations of PPP, with Gray noting that a lot of issues that impacted smaller businesses pre-COVID could continue to serve as headwinds for such firms as the United States economy takes steps toward recovery. For example, tax deductions may not be that helpful to small businesses that aren’t profitable.

“PPP is a limited use program — driving at employing people for a short period of time — not supporting long term marketing, product/service development and strategic planning that small businesses need to invest in now to assure future success in the form of lasting small business growth and development,” said Gray.  “Our advice for small business owners [is this]: Remember, this could be a distraction — focus 95% of your time an effort on how to move your business forward long term: What business are you in today? Who’s buying that? What other businesses could you be in?”

Gray joins a bevy of other business experts in calling for more long-term financial aid for companies, such as the Troubled Asset Relief Program (or TARP), which she describes as low interest loans that eventually get repaid, “as opposed to grants that are deficits our children’s and grandchildren’s generation will have to pay back through taxes.”

Citing similar concerns, early this month, The New York State Society of CPAs, the American Institute of CPAs and a coalition of more than 560 organizations sent a letter to Congressional leaders urging passage of legislation making it clear that expenses related to a forgiven Paycheck Protection Program (PPP) loan are tax deductible.

What’s more, Johnston cautioned that the newest PPP round could prove insufficient in reaching all of the many businesses in need of funding — necessitating additional aid from the incoming Biden-Harris administration.

“Given that the size of this round is only just over half of the amount taken by businesses in the first round, there is a real possibility that not all eligible businesses who want the money will be able to access funds before they are exhausted,” he said. “This will likely create calls for additional PPP funding early in the Biden Administration.”

The future of the U.S. economy could hinge significantly on the heath and viability of small businesses: “Every small business that fails has an average of 5 employees who lose their jobs, plus an addition 3-5 companies that lose work — potentially going out of business as well. Numbers can keep spiraling downwards for a long time to come,” said Gray.

“When a small business closes, we don’t just lose a business, we lose exporters, producers of unique goods and services, innovators, contributors to the local community in the form of volunteerism, jobs and profits,” she added.

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