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Why the PPP still falls short for small businesses

Last weekend, President Trump signed the new pandemic relief bill into law. In addition to long-awaited stimulus checks for Americans, it promises a dose of relief for thousands of small businesses struggling to survive another COVID-19 surge. In 2020, my company helped more than 4,000 small businesses get funding through initial rounds of the Paycheck Protection Program (PPP). 

Although many changes in this bill will be beneficial for businesses, on the whole, the new round will still fall far short for too many small businesses. (My company could benefit from increased business if the policy changes advocated for in this piece are enacted.)

In April, I wrote a letter to Congress outlining how to best use emergency funding to support small businesses through the year ahead. In the ensuing weeks and months, my team saw firsthand how the congressional legislation fell short for the majority of companies. 

Ultimately, this round of stimulus money isn’t shaping up to be significantly different. The improvements are too little and too late. On top of that, the U.S. banking system simply isn’t designed or incentivized to serve small businesses, and the PPP makes that glaringly clear.

The burden placed on business owners to navigate the PPP is overwhelming. The onus on lawmakers shouldn’t just be to provide money; it should also be about making funds truly accessible. Look at stimulus checks for individual citizens. The final amount they’ll get in early 2021 is still in flux, but the process is simple and clear: If you qualify based on tax information, you get money automatically. 

Why is this not the case for small businesses?

Instead, overworked business owners—with median cash buffers of less than a month—are forced to exert herculean effort to even apply for relief or forgiveness. A Government Accountability Office study from September found that forgiveness applications can take up to 15 hours for small and midsize (SMB) owners to complete and more than three days for lenders to review.

These businesses barely have the resources to keep running, let alone to dedicate days to an intimidating application process. In a survey of small businesses from December, Nav found that the smallest companies found the application paperwork to be the “most frustrating” part of the PPP. Compare this to larger midsize businesses who were more frustrated by not getting the right terms or amount. 

Changes this time—like a simplified forgiveness application for those who secured less than $150,000 previously—are important, but not enough. Small businesses should be able to automatically qualify for aid based on tax information. That way, we can avoid thousands of companies dying out simply because they can’t handle the paperwork.

Separately, there’s a blatant disconnect between those designing the PPP process and the businesses trying to benefit from it. Watching lawmakers from both sides of the aisle design this bill illuminated a fundamental lack of understanding of small businesses’ operations and needs. 

First, the definition of small businesses is flawed. About 98% of businesses in the U.S. employ fewer than 100 people. The bill’s definition of a small business, however, is anything under 300 employees for second-time PPP borrowers and under 500 for first-time borrowers. Companies with over 100 employees need support too, but such a broad definition increases the risk that the most vulnerable will get left out.

It also underscores how legislation doesn’t account for the fact that SMBs are not made equal. A restaurant with two dozen employees to pay may need to spend its money quite differently than a local gym owner who needs to upgrade facilities and equipment to stay afloat. Payroll is critical for some, but not all. 

Thankfully, there’s a bit more flexibility allowed this time around when it comes to how businesses can apply their funds—but the program still paints SMBs with too broad a brush. This disconnect is unreasonable. Nearly all businesses in the U.S. are SMBs, which account for 1.5 million jobs annually and drive about 44% of U.S. economic activity. Our systems and lawmakers should make decisions reflective of these facts.

Finally, the system isn’t set up for banks to prioritize small businesses. In the initial rounds of the PPP, my team helped several thousand small business owners attempt to access loans. Through that process, we saw banks prioritize customers they already had loans with first, then their larger accounts, and then, maybe, SMBs. At the end of the day, SMBs weren’t a priority. Our recent survey backed this up. Many SMBs assumed they should go to banks first, and did so. But of those planning to apply again, many said they’ll instead opt for online or alternative lenders first.

On the flipside, banks, too, are fatigued. Their processes aren’t set up for the PPP. Except for the very largest chains, most banks are struggling to contend with demand. Lender associations warned of lender fatigue for the application and forgiveness processes months ago. From a business perspective, it’s a distraction from banks’ core operations and objectives, which keep them profitable. Incentives aren’t aligned, and ultimately, the effort to participate in the PPP and help the smallest of small businesses just isn’t worth it for a lot of traditional banks.

At the end of the day, this new round of stimulus is welcome, needed, and an improvement. But it has also illuminated just how large the banking gap for small businesses has become. In the last PPP round, it was sad to see thousands of hard-working small business owners turn to banks for help first, only to be met with a system that wasn’t set up to help them. Too many, ultimately, didn’t get the money they needed. Roughly one in five small businesses have closed—more than 160,000 of them between April and September alone. Many more still will.

Fixing the PPP won’t be easy. But SMBs are the economic foundation of our country and integral to our local communities. We need to collectively design a system that prioritizes, accommodates, and truly understands small businesses.

Greg Ott is CEO of Nav.

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