Government lending to small businesses during COVID19 – Why? How? And will it work? Report from Brookings
The U.S. Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID19 pandemic. In these unprecedented times, the CARES Act authorized $349 billion in loans to small businesses that can be forgiven, provided the loans keep workers on payroll and don’t cut compensation, under the Paycheck Protection Program (PPP).
The Brookings Institute recently held a webinar entitled, “Government lending to small businesses during COVID19 – Why? How? And will it work?” Panelists agreed that there was not enough money initially authorized for the program to ensure U.S. small businesses continuity. Michael Strain, Director and John G. Searle Scholar at American Enterprise Institute, discussed challenges the program has posed for banks as well as small business owners thus far. Under the PPP, banks or other lenders approve the loans for small businesses, Strain noted that an established relationship with a bank is vital during this critical time since banks are more likely to process and approve loans for existing customers than new customers. Beth Mooney, Chairman and CEO at KeyCorp, acknowledged that creating a new relationship with a bank in the era of social distancing is even harder since that relationship is beginning virtually.
Mooney continued that the U.S. Small Business Administration (SBA) has been working to ensure that the PPP is working operationally. Mooney explained that while Congress rushed to pass the CARES Act in order to provide fast relief to small businesses, the operational complexity of the program was underestimated. Sandy Baruah, President and Chief Executive Officer at the Detroit Regional Chamber, recognized that while the program has had a rocky start, running the program through the SBA was the only option, and that “we are dealing with a challenge at a scope and breath that we haven’t experienced before and [that] no one [has] prepared for this before.”
- Sandy Baruah, President and Chief Executive Officer, Detroit Regional Chamber
- Michael R. Strain, Director and John G. Searle Scholar, Economic Policy Studies, American Enterprise Institute
- Nellie Liang, Miriam K. Carliner Senior Fellow, Economic Studies, The Hutchins Center on Fiscal and Monetary Policy
- Beth Mooney, Chairman and CEO, KeyCorp
- David Wessel (Moderator), Director, The Hutchins Center on Fiscal and Monetary Policy, Senior Fellow, Economic Studies
To view the webinar, click here.