Ensuring the success of emergency stimulus programs for Main Street
By Noah W. Wilcox and Jim Lamke
The partnership between community banks and small businesses to support local economies has been a bright spot of the U.S. coronavirus response, but conflicts between two federal stimulus programs are undermining the partnership’s success and should be addressed by Washington.
Under the federal Paycheck Protection Program, banks have made more than $525 billion in emergency small-business loans to keep Americans employed throughout the country. This program was designed by policymakers to ultimately forgive the loans, turning them to federal grants for small businesses that use the funds to retain their workers during pandemic-induced shutdowns.
Small businesses and nonprofits also have access to Economic Injury Disaster Loan advances, which provide federal grants of up to $10,000 for immediate relief. The Small Business Administration, which administers both programs, has repeatedly stated these advances do not have to be repaid. However, it failed to inform recipients that if they also received a loan under the Paycheck Protection Program, their advance would reduce the amount of their PPP loan that would be forgiven, leaving them with a balance to be repaid.
If this sounds a little confusing, that’s part of the problem — as our businesses have discovered firsthand. The conflict between these emergency programs is proving to be a surprise for many mom-and-pop shops, which don’t have teams of lawyers and auditors at their disposal to make sense of the interaction of complex government programs. For those suddenly told they must repay their emergency federal assistance, it feels like a bait and switch.
Given the ongoing economic downturn, it also feels like an unpayable debt. Small businesses and nonprofits that agreed to use the emergency loans to keep employees on payroll in exchange for this assistance suddenly must repay up to $10,000. Much of those funds have already been paid out to employees, which was the entire point of the federal programs themselves.
In short, federal programs designed to help small businesses survive government-imposed closures are threatening to close their doors for good. For entities that continue to face total or partial shutdown, this unexpected debt burden is debilitating and potentially fatal.
The arrangement also imposes upon banks the unpaid balance of loans they didn’t make. The SBA has effectively originated Economic Injury loans to struggling businesses and then unilaterally assigned them to Paycheck Protection Program lenders without their consent. If borrowers are unable to repay the loans, the banks are required to devote their own resources to apply to be made whole by the SBA. These government-imposed debts are producing unexpected expenses for borrowers and community lenders alike.
Setting these emergency stimulus programs at odds with each other ultimately undermines what they are designed to do — keeping Americans working through the coronavirus pandemic. This conflict also tarnishes one of the few success stories of the pandemic, with the Paycheck Protection Program saving an estimated 33.7 million jobs.
Washington needs to step up and fix this mess. The SBA should follow its own guidance and cease deducting Economic Injury loan advances from PPP forgiveness amounts. This would end the bait-and-switch for Main Street businesses while unleashing the full potential of these successful programs.
Noah W. Wilcox is president, CEO and chairman of Grand Rapids State Bank and its holding company, Wilcox Bancshares Inc., in Grand Rapids, Minn., as well as chairman of the Independent Community Bankers of America. Jim Lamke is CEO of Lamke Broadcasting Inc., digitally broadcasting as KOZY/KMFY/KBAJ radio out of Grand Rapids, Minn.
