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Small Businesses May Soon Get More Federal Financial Help

NOEL KING, HOST:

Congress is likely to vote on a fourth coronavirus aid package soon. It should include more money for the paycheck protection program that's supposed to help small businesses. That program ran out of money after less than two weeks. And remember, there were $349 billion in it. With me now is David Wessel, who directs the Hutchins Center at Brookings.

Hey, David.

DAVID WESSEL: Good morning.

KING: So $349 billion is a lot of money. How did it all go so quickly?

WESSEL: Well, the paycheck protection program is really a good deal. Through the Small Business Administration, it offers cheap loans - just 1% interest, you don't have to pay any payments for the first six months - to employers, businesses and nonprofits. And it says you don't have to pay us back if you maintain your payrolls. Anybody could apply as long as they would say - and this is how the law works - that the uncertainty of current economic conditions made a loan necessary to support ongoing operations. The idea, of course, is to encourage employers to avoid layoffs. But there are millions of companies with fewer than 500 employees. And there simply wasn't enough money to meet the demand. That was predicted, and it was predictable.

KING: OK. And then I know there's been some upset about how the money was allocated, right? Was it all going to small businesses, to deserving businesses? Explain what happened there.

WESSEL: Right. Well, in programs like this, there's always a tradeoff between getting the money out quickly - we are in a crisis after all - and writing rules so the money goes only to the intended targets. This was a first come, first serve program. There was a rush to file. You had to go to a bank or another lender who was authorized to make SBA loans. 1.6 million borrowers got loans, but a lot of people didn't get through. Some big banks, which do a lot of SBA loans - like Key Bank of Cleveland told me that they usually handle 50 loans a month. They were handling 800 an hour during the peak.

KING: Wow.

WESSEL: But some banks decide - yeah, it's amazing. Some banks figured it was easier to make big loans, a few of them, than a lot of small loans. Half the money went to what was in loans of less than a million dollars. Many mom-and-pop shops didn't get loans. A few big companies did - Ruth's Chris, Fogo de Chao, Lindblad Expeditions, Quantum, Potbelly. And one of them, the Shake Shack, got $10 million and got so much bad publicity, it decided to give the money back.

KING: So we're hearing in this new round of funding $300 billion, do you think that's enough to meet the demand?

WESSEL: My guess is that $300 billion will not suffice. PNC Bank has already told prospective applicants that it doesn't think that'll be enough for everybody to get a loan. But a lot depends on this big question of how quickly we restart the economy. What we don't know is, is Congress going to put some new rules on the program and in response to this bad publicity about big companies getting money? It is likely to set aside at the demand of Democrats, set aside some money for smaller banks, minority-owned banks and for community development financial institutions in the idea that they serve truly small companies.

KING: OK, that's really interesting. The bigger banks obviously were clearly overwhelmed by this. Was there a different way to do this, a different way to get money to employers, or are banks the only option?

WESSEL: Yes, a few members of Congress, among them, Democrat Pramila Jayapal of Washington and Republican Josh Hawley of Missouri have offered alternative plans that rely on the system the IRS uses to collect taxes from employers. They'd essentially run the system in reverse to give grants to employers whose revenues are down. This could be expensive. One estimate I saw puts it at $2 trillion, though some of that would be offset by fewer claims for unemployment insurance.

KING: David Wessel of Brookings. David, thanks so much for joining us.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.