May 23, 2020 - Economy & Business

Little help for the little guy

Illustrated collage of a cut out Alexander Hamilton and dimes.

Illustration: Aïda Amer/Axios

While large businesses can generally borrow the money they need to get through the crisis, small businesses cannot.

Why it matters: Small businesses are the main engine of employment growth and account for roughly half of all private-sector jobs. If they fail en masse, the whole U.S. economy will collapse.

By the numbers: As Axios' Dion Rabouin has reported, America's largest companies have borrowed more than $1 trillion so far this year, with seemingly no limit on how much more they can borrow if they need it.

  • The Federal Reserve has ensured that nearly all companies with access to capital markets can borrow as much money as they need, with confidence that they will continue to be able to borrow and refinance as those debts become due.

The catch: Small businesses, by contrast, cannot borrow what they need. They're far too small to be able to access capital markets, and banks don't want to lend to them either.

  • Small businesses are notoriously bad credits even at the best of times, which means that meager potential profits on a small-business loan don't make up for the risk the bank is taking.

The only help for small businesses so far has come from the Paycheck Protection Program (PPP), which, as its name implies, was designed primarily to protect employees' paychecks.

  • Be smart: Think of the PPP as a way for the federal government to subsidize employment — it funnels cash through employers as an alternative to paying out $600 per week in unemployment checks. The PPP is good for small-business employees but provides much less help than is needed for business owners.

Driving the news: There's no private-sector solution to this problem. While a bipartisan Senate proposal to support small businesses directly does exist, Sen. Chuck Grassley told reporters this week that negotiations over further coronavirus relief won’t start in earnest until the end of June, and Sen. Roy Blunt said passing another relief bill by July is “optimistic.”

The bottom line: Without substantial direct support from the government, millions of small businesses will never be able to find the cash they need to survive this crisis.

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