The PPP is a Bailout for Workers, Not Business
The word ‘bailout’ carries a lot of strong emotions. For many, it means the U.S. taxpayer’s hard-earned money is being funneled to mismanaged corporations — which has some grains of truth to it, but some falsehoods too. Many don’t realize that the entirety of the TARP funds distributed in 2008 were completely returned to the government, with interest, and they were strictly loans. The Paycheck Protection Program (PPP) on the other hand is a new tool in our financial crisis toolbox. It is a loan, but dollars paid directly to workers are converted to a grant.
I’m frequently asked why these bailouts and loans are necessary for healthy companies in the first place. Most small businesses grow through constant reinvestment of profits. Cash is a tool to fuel business growth, not to sit in a bank account earning less than 1% interest. In our financial system, large cash reserves have been generally frowned upon and most companies don’t have more than a few months of cash on hand. Small businesses just can’t plan for total shutdowns and severe economic shocks. With most only making a 7% profit margin annually on average (in a normal economy) they’re not building large reserves anyway.
Without the PPP, we will see unemployment rates skyrocket. Without revenue, businesses would become insolvent trying to pay payroll, so they furlough staff so unemployment benefits can kick in. It wouldn’t be ethical for businesses to go into bankruptcy paying payroll it can’t afford. Long-term that still puts people out of work, and it damages investors, other suppliers and communities it might support.
The companies that accept PPP funds for payroll support must keep workers employed and pay cuts are restricted. The loan is a forgivable as long as the business can prove it was used to pay workers directly. It’s a grant program for the worker, not for the business.
American taxpayers will foot the bill for this crisis no matter what happens.
There are two options:
- Pay the business to pay the worker. This keeps businesses intact and ready to reopen. We prevent widespread loan defaults.
- Don’t pay the business but pay the worker’s unemployment claims. +$600 per week written into the CARES Act +the costs of any additional social programs an individual might be eligible for.
Ok, but wasn’t this money meant for “real” small businesses, like the mom & pop restaurants or locally-owned shops? There is a disconnect between the public’s perception of small business and the reality. The CARES Act specifically used existing definitions of the Small Business Administration to support all the businesses falling under those definitions, which can be thousands of employees depending on the industry, and other factors like employees per physical location (SBA Small Standards by Industry).
In fact, the typical mom & pop, which you might define as fewer than 20 workers, is around 17% of the total number of small businesses (US Census Bureau) — 65% of small businesses are sole-proprietorships. If the intention of the CARES Act was to support these micro-businesses specifically, then why didn’t Congress write those employee limits? Yes, very small businesses need more access and resources than larger businesses, but I don’t think we should preclude any workers from receiving support. We need to maintain as many employee-employer relationships as we can through this crisis.
Let’s not place blame on the companies applying for support for their workers. Celebrate those companies working hard to keep their people employed in this unprecedented crisis and applying for every program they can. The PPP, while not perfect, is the right direction to getting us back to normal. Take care of each other out there, we face more storms ahead.
Jessie Naor is business executive in the aviation industry and experienced committee member of national and regional trade organizations. She received her MBA in Financial Business and Management from the Johns Hopkins University’s Carey Business School and completed her undergraduate degree in Aviation Business Administration at Embry-Riddle Aeronautical University.
