Will government help for small business arrive fast enough?
The national response to the coronavirus pandemic – however necessary – is crushing Main Street.
This economic tsunami wasn't caused by market animal spirits, irrational exuberance, bad business practices, or bolloxed supply chains. In the span of a month, an invisible Black Swan took us from robust to shut down. It's not your fault, small business owner. You didn't cause this.
That's why you're going to hear me say something I've never said to the government before. Instead of "Get out of our way," today I'm saying, "You must step up and step in."
Right now, essentially every small business is in some level of distress, from mild to existential. Employees are praying for a paycheck, bank drafts keep drafting and the Post Office keeps delivering bills. Meanwhile, customers are holed-up at home with their own diminishing debit accounts. This cannot last long without collapsing half of the U.S. economy – 28 million small businesses. Another month of lockdown will move us closer to this negative force-multiplier: When a small business collapses, at least one family collapses – often more.
Thankfully, Washington is stepping up, and it appears to be different from 2008-09 when $Trillions in Fed "quantitative easing" went to Wall Street, and government bailouts went to big business, while Main Street got precious little. But as proof, Washington must urgently answer these three questions: What does emergency small business help from the government look like? How do we get it? Will it take too long? Watch for the answers to be embedded in three facts:
1. Any emergency government cash for small business will come from two parallel universes – fiscal, from Congress, and monetary, from the Fed – each with its own financial resources.
2. All small business loans from whatever source require underwriting, which is the sophisticated, multi-faceted process of risk assessment required of all banks to minimize bad loans. So if emergency cash becomes a reality – as in this week – some level of underwriting abatement MUST happen.
3. Regardless of the source of the government-assisted loan your business receives, the check will come from a bank.
The CARES Act, just passed by Congress and signed by the president (fiscal universe), allocates $350 billion (won't be enough) to the SBA for small business loans. Before you get excited, the rude truth is the SBA doesn't make loans, it guarantees loans made by banks. And like other loans, an SBA-guaranteed loan also requires underwriting, which historically means – not fast. Enter the Fed – from the monetary universe.
Three important things to remember about the Federal Reserve: 1) the Fed can print money; 2) they aren't hampered by budget and political constraints like Congress and the president; 3) and they're the big-daddy bank regulators who oversee and appraise the quality of every bank loan in America – the underwriting. So, here's what's different from 2008-09, and it's BREAKING NEWS!! The Fed issued two unprecedented statements this week:
1. In a memo to every banker in America – including yours – the Fed said, in part: "Regulators will reduce examination activities ... especially with smaller banks." As in, community banks.
Remember, the Fed is the bank loan underwriting judge and jury, and it's telling your bank they're not going to gig lenders for making a coronavirus-related emergency loan that at any other time in history would have been held against them as low-quality. That should speed things up.
2. In announcing the new Main Street Lending Program this week, Chairman Powell told CNBC the Fed will "... underwrite loans going directly to small business."
"Huh?" That's the reaction by bankers I've talked to. They've heard from the Fed, but it's not yet clear how they're going to execute "small business loan underwriting." Section 13 of the Federal Reserve Act allows the Fed to act as "... a lender of last resort to individuals, partnership and corporations." Legal, but unprecedented. Will these two unprecedented steps cut through the underwriting red tape and throw an emergency cash lifeline to America's small business sector before it collapses? Now? Not a month from now?
Join me in Tweeting this: Chairman Powell, sir, use your charter and unique financial resources to help Main Street - the other half of the economy - today. Before the sun sets. @federalreserve #helpsmallbusiness
Get ahead of the crowd. If your business is in trouble because of the coronavirus, go to your banker today – face-to-face – and say this: "I need an emergency business loan because we've been negatively impacted by the coronavirus pandemic."
Expect up to three steps of government-assisted transactions from tomorrow through the rest of 2020, in this order: 1) a Fed-associated emergency loan from your bank to tide you over; 2) a possible SBA Disaster Relief loan in the middle; 3) an SBA 7A loan for a longer-term amortization solution. The last two may "take-out" the emergency loan. Buckle up. Getting government help can be maddening.
Here's good news in the breaking news, and it's where the fiscal and the monetary universes intersect: The CARES Act provides that for the government-determined coronavirus emergency period, any payroll, rent, mortgage payments, utility bills, etc. – a handful of specific expenses – you can verify you paid, THAT AMOUNT will be FORGIVEN off of your government-associated debt.
Small business employers – seven million strong – should send the message to both universes that every dollar of emergency cash you get creates this positive force-multiplier: 1) it helps you stay in business; 2) it keeps employers and employees connected; 3) it keeps 60 million employees out of the unemployment lines, and 4) the unemployment money can go to 20 million independent contractors. One dollar = four solutions.
Bankers have asked me to mention that any business that was already in jeopardy – as in default with a bank – before the coronavirus pandemic, may not qualify for some of these loans.
Write this on a rock ... Three last thoughts: Believe in yourself as we believe in each other. Surviving is winning. This, too, will pass.
Jim Blasingame is the author of The 3rd Ingredient, the Journey of Analog Ethics into the World of Digital Fear and Greed.
