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America’s small businesses have been severely impacted by the economic downturn caused by the pandemic — and lawmakers have focused a significant part of federal relief on helping this critical part of our economy.
As of the New Year, five pieces of legislation have been enacted to help the United States cope with the economic impact of COVID-19. Taken together, the five COVID relief bills cost a total of $3.5 trillion — $909 billion of which has been targeted to small businesses, though total available funding for various loan programs exceeds the net cost associated with the program, as businesses are expected to repay a portion of their loans. Lending from the Federal Reserve provided a small amount of additional support, but the lending program that most directly impacted small businesses expired on January 8, 2021. Below is a review of the elements of assistance for small businesses.
The Paycheck Protection Program (PPP) was enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 and was most recently extended in December 2020. The terms of the program have evolved since it was first created, but it provides federally backed loans to incentivize small businesses to maintain their payroll during the crisis; those loans would be forgiven if used for certain expenses and if employment and compensation levels are maintained.
As of February 7, 6.4 million PPP loans had been issued, totaling $623 billion, and with an average loan size of about $97,000. Those loans were made to various sectors, with businesses in healthcare; construction; and professional, scientific, and technical services among those receiving the most funds.
Research suggests that design issues with the program may have limited its reach and effectiveness, especially for businesses that were most affected by the COVID-19 pandemic. Nevertheless, the PPP has helped millions of businesses stay afloat during the pandemic.
The Economic Injury Disaster Loans are small, lower interest loans with options for principal and interest deferment. Small businesses that apply for such loans are also eligible for Emergency Economic Injury Advance Grants, which are advances of up to $10,000 that do not need to be repaid. Those loans and grants can be used for operating expenses such as payroll costs, pay for sick leave, and debt-service costs.
Businesses including live venue operators and theatrical producers may qualify for grants of up to 45 percent of their gross earned revenue, with a maximum grant amount of $10 million. $2 billion has been reserved for smaller venues with up to 50 employees.
The CARES act included temporary provisions to boost cash flow for certain business through the tax code, though those measures are not exclusively focused on small businesses. Some of those provisions have been amended and extended.
In 2020, certain employers were eligible for a partially refundable payroll tax credit of up to $5,000 per employee per calendar quarter on wages paid after March 12, 2020 and before January 1, 2021. From January 1–June 30, 2021, employers are eligible for a credit of up to $7,000 per employee per calendar quarter. The Committee for a Responsible Federal Budget (CRFB) estimates that the net cost of the employee retention credits will be $36 billion.
As part of the Tax Cuts and Jobs Act, businesses with net operating losses are able to deduct losses of up to 80 percent of their operating income. Any losses in excess of that amount could be carried forward to reduce taxable income in future years. The CARES act increased that allowance to 100 percent of taxable income and permits businesses to carry those losses backward as well as forward. In effect, some businesses will be eligible for tax refunds for previous years. In addition, any excess losses can be applied to the non-business income (for example, wages and investment earnings) of business owners. Finally, the act temporarily increased the amount of interest expenses that businesses may deduct. CRFB estimates that the net cost of those modifications will be $206 billion.
In addition to measures enacted by the federal government, many state and local governments have authorized or are considering measures to protect small businesses. Such measures include cash infusions through loans, grants, and economic development funds, as well as cost deferrals on taxes, rent, and utilities.
This program was intended to provide relief to small businesses for payment of debt on existing non-disaster-related SBA loans, including loans specifically designed for small businesses, economic development loans, and microloans. No application was required — as part of that effort, the SBA automatically paid six months of principal, interest, and associated fees on loans in regular servicing status as well as for new loans approved prior to September 27, 2020.
The Federal Reserve created the Main Street Lending Program to support small- and medium-sized businesses. The program was intended to support up to $600 billion in loans via eligible lenders and was run by an entity created by the Federal Reserve Bank of Boston. For various reasons — including the novelty of such a program for the central bank — the program was considered by some policymakers to be underperforming, and it ceased operations in early January without having a significant impact on the recovery.
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