Save America's Small Businesses and Their Workers Through Emergency Payroll Relief

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Millions of small businesses are closing, laying off millions of our fellow Americans. We need to act now to save America's small businesses and their employees and prevent a potential Great Depression.

  1. The stimulus provided so far -- consisting mostly of loans from SBA -- is insufficient to meet the urgent need to keep small businesses in business.
  2. We propose an immediate temporary payroll support grant program administered by the Treasury in partnership with the IRS to make direct payments to small businesses. 
  3. We propose converting the existing loans in the Paycheck Protection Program into direct grants for small businesses.

Here are columns and articles about the idea: 

Please join us by telling our leaders in Washington to act now.

Alan Khazei, co-founder of City Year and a Democratic candidate for Congress in Massachusetts

John Bridgeland, CEO of Civic and former director of the White House Domestic Policy Council under President George W. Bush.

Victor W. Hwang, founder and CEO of Right to Start and former VP of Entrepreneurship of the Kauffman Foundation

Jessica Milano, VP and Director of ESG Investment Research, former Deputy Assistant Secretary of Treasury, Office of Small Business, Community Development and Housing Policy



Small businesses are the foundation of our communities and the largest single source of new job growth in our economy. Fully half of America’s private sector workforce works for a small business and these jobs are often the high-quality, higher-paying jobs that provide pathways to the middle class.  The nation’s 30 million small businesses employ nearly 60 million people and the vast majority (88 percent) have fewer than 20 employees. New businesses account for almost all net new job creation in America, and almost all of them are small businesses.
So in addition to spending taxpayer dollars on unemployment insurance and direct payments—measures that primarily help people already out of work -- Congress should prioritize keeping people in their jobs and support emergency payroll relief to small businesses.  This action will provide a much better return on investment to America’s taxpayers than corporate bailouts, untargeted direct payments, and letting millions of Americans join the unemployment lines.  Keeping small businesses afloat is vital to maintaining resilient communities and a quicker return to economic growth after the COVID-19 crisis has passed.  It is much faster to re-open your doors than to re-start a new business, and far easier to maintain productivity with existing, trained workers than re-hiring.

Direct payroll relief builds on a model recently enacted by the United Kingdom in response to the COVID-19 crisis that supports productive employment rather than subsidizing those out of work.  The financial and psychological effects of workers becoming unemployed and small businesses shutting down will be devastating to the economy and to individuals and their families.  A short-term emergency wage support program can keep workers in their jobs, small businesses running or poised to operate when shut-down mandates or other conditions lift, and workers active working online, keeping their skills sharp and even virtually volunteering in their communities because they know they will keep their job.
The relief provided to small businesses in the current stimulus package -- consisting mostly of loans from the Small Business Administration that many small businesses will never have the capacity to apply for and that will reach small businesses far too late in the pandemic crisis -- is insufficient to meet the urgent need to keep small businesses in business.  Seventy-six percent of all businesses in the United States have average annual receipts less than $100,000.  For minority-owned and woman-owned businesses, that figure is even higher: 86 percent of minority-owned businesses and 88 percent of woman-owned businesses bring in less than $100,000 per year.  
Closure or reduced operations are mandated for many businesses and are the responsible response for others. Many businesses lack the capital cushion or access to credit that will help larger businesses to survive a prolonged period of reduced or zero activity. Most do not have necessary access to lending, as banks are unlikely to extend credit to many small businesses.  And time is of the essence: gap financing is essential to meet fixed costs during the business interruption. The key challenge is to ensure that business interruption does not lead to widespread business failure, and the goal should be businesses survival, not full health.
We propose a temporary payroll support grant program administered by the U.S. Department of the Treasury in partnership with the Internal Revenue Service.  Legislation should provide for direct payments to small businesses to meet 80 percent of payroll costs, as determined by total payroll expenses on December 31, 2019.  Some of the funding already approved by Congress for the small business loan program and unemployment insurance could be repurposed for this emergency wage support program, on a voluntary basis, if the small businesses and their employees choose this option.  
The mechanics would work like this.  The Treasury Department would make eligibility determinations based on a review of small business revenues from the latest reportable tax year.  Any small business as defined by the IRS and SBA would be eligible.  Advance monthly payments equal to 80 percent of payroll would be made to small businesses based on payroll tax filings for the latest reportable year.  Treasury could get emergency wage support grants out the door immediately. 
Alternatively, small businesses and their employees would apply for emergency wage support with a simple one-page on-line application in which the employees would voluntarily choose to receive emergency wage support instead of unemployment insurance.  The funding that would have gone to their unemployment payments will be reallocated to emergency wage support grants.  Payments could also go to non-employer firms such as sole proprietorships, likely based on 2018 full year tax returns. To meet the severity of the crisis, and to avoid the administrative complexity and delay involved in any application, participation in the program would be automatic -- making payments to all eligible small businesses once they submit the simple on line one-page form. 
Alternatively, Governors should be given express authority to use unemployment insurance to fund an emergency wage support program in their States, again to subsidize employment.   Under this scenario, States would automatically write checks to all eligible small businesses in their states using some portion of their unemployment funds and small business loan money allocated for their states.   Any company that repaid the money would be out of the sales tax increase (some problems with that on the back end, but might work to get it out the door).  

Small businesses facing business interruption need special attention in a stimulus package to address the economic impact of the COVID-19 crisis. Roughly half of America’s population is under a stay at home order and thus closure or reduced operations are mandated for many businesses and are the responsible choice for others.  Many small businesses lack the capital cushion or access to credit that will help larger businesses survive a prolonged period of reduced or zero activity. Most do not have necessary access to lending, as banks are unlikely to extend credit to small businesses which may have been sound before the crisis, but may also struggle to survive it.  And time is of the essence: gap financing is essential to meet fixed costs during the business interruption.
In the aggregate, small businesses (employing <500 people) make up ~46% of private, non-farm US GDP, and employ ~48% of the US workforce, while ~18% of US workers are employed by businesses with fewer than 20 employees. Of American enterprises, ~40% have revenue under $100,000, and over 70% have revenue under $500,000. It is imperative to provide a bridge for small, main street businesses to remain viable during prolonged COVID-related business interruption. Particularly because large companies are getting support from Congress’ action and in the case of the Airline Industry, their support is contingent on them keeping their employees in their jobs and not being laid off and forced on to the unemployment lines.  If the airlines are able to keep their employees on the job, all small businesses should have that option as well.   essential that measures to address to the special needs of small businesses be part of the response.
Below are some preliminary questions that need to be answered to flesh out the idea:
1) What size businesses should be eligible?
2) To that end, how does the distribution of businesses by financials look? For example, how many businesses have a gross revenue of $1mm or less? What is their payroll?
3) What should maximum loan size be as a percent of revenue or EBIT?
4) What would the program cost at different specification levels, net of repayment?
5) When should repayment begin? Should there be an initial interest holiday and, if so, for how long? Should interest rates be varied to provide a more progressive form of relief?
To get a better sense of small business financials, it may be possible to query a proprietary database of small business bank statement information at the transaction level. Given that data, what questions would we want to ask? The below two came to mind, but I welcome others as well:
1) What percent of monthly revenue do small businesses have in their accounts at a given time?
2) How do monthly operating expenses break down in terms of rent, payroll, etc.?
Ultimately, banks are not likely to provide what small businesses need to weather this crisis. Temporary, repayable, and measured relief through the tax code, coupled with legislatively mandated, voluntary, or other forbearance measures, could give small businesses a much better chance at surviving the crisis period.