When the COVID-19 pandemic struck in the spring of 2020, the U.S. Small Business Administration suddenly found that it had gained a vast measure of relevance and responsibility almost overnight. Long considered to be little more than a modest resource for financing and entrepreneurial advice, the SBA was now tasked with delivering billions of dollars in emergency relief funds to companies that risked permanent closure after shutdown orders and diminished consumer demand torpedoed their revenues.
The SBA has stepped up to the task, overseeing several new or expanded programs offering loans, grants, and debt relief to help businesses endure the lengthy economic fallout of the pandemic. But the agency’s successes have been consistently tempered by a number of humbling failures, including the slow pace in relief efforts, multiple instances of fraud, and borrower confusion amid frequently shifting agency rules.
Any mistake presents a learning opportunity, and the SBA and lawmakers can take such lessons to heart to better hone small business support in the future. Doing so will provide a much-needed boost in entrepreneurial activity that will translate to more robust economic growth and job creation. Either the government invests in small businesses that create jobs or pays people who are not working. In our opinion the choice is clear.
A crucial first step is to recognize the newfound importance of the SBA as a source of support for countless entrepreneurs. The agency’s diminutive status has been reflected in its traditionally modest budget; just one month before the pandemic struck, the Trump administration proposed slashing the SBA’s funding down another 25 percent. Years of minimal funding and staffing left the SBA struggling to respond when it was saddled with oversight of the COVID-19 relief programs, slowing the delivery of vital relief to American businesses.
The Biden administration’s budget for the 2022 fiscal year seeks to increase the SBA’s budget by 9 percent to $852 million. To put this in perspective, that’s about 7 percent of the $1.2 trillion loaned to small business each year. Potentially, the Community Navigator program will make a difference by mentoring and training entrepreneurs. But there’s a catch: once these entrepreneurs have been trained, there is not enough affordable capital to support these businesses and allow them to hire.
The past year has taught us that relief efforts, whether as an ongoing response to the fallout of COVID-19 or responses to future crises, should place greater emphasis on supporting small businesses. These companies account for about two-thirds of newly created jobs and half the GDP of the United States.
It was dismaying to see that the massive $1.9 trillion American Rescue Plan included just $50 billion for small business relief. This type of modest support will do little to assist with the recovery of the labor market, which the Congressional Budget Office estimates will take years – even as the growth of larger corporations leads to a rapid recovery of GDP.
The Biden administration instead took the strategy of providing direct support to Americans through stimulus payments, enhanced unemployment benefits, child tax credit payments, and other contributions. Unfortunately, people tend to put such payments toward essential items, savings, or paying down debt; they have a minimal impact on actually stimulating the economy.
Lawmakers, working with the SBA, may consider the Canadian COVID-19 business relief strategy. While Canada also provided direct support to its citizens, its business relief strategy focused more on helping companies maintain a robust workforce. One key support offered wage subsidies to help businesses that suffered revenue losses to “re-hire workers, help prevent further job losses, and ease your business back into normal operations.” Another extended the Work Sharing Program, providing income support to help companies reduce employee hours without implementing layoffs (a virtually identical program in Connecticut was also enhanced during the pandemic).
Other Canadian relief provided small loans that are temporarily interest-free, commercial rent assistance, and help accessing lines of credit and other funding. Essentially, this model helps improve access to the capital that entrepreneurs desperately need and often cannot get from traditional lenders. The SBA has a similar opportunity to improve its financing options to make the agency more competitive in the financing market.
In updating its small business support, the SBA must strive to create workable, easily understood models that can remain consistent for the long-term. One common frustration in COVID-19 relief programs such as the Paycheck Protection Program was how their rules were constantly changing. This made the process considerably more complex and increased the likelihood of applications being rejected for a simple mistake.
It is also essential that the SBA make substantial investments in improving its digital offerings. The agency’s shortcomings in this field became clear when the Shuttered Venue Operators Grant program, aimed at supporting arts and cultural venues, had to shut down its application portal on the same day it opened due to technical glitches. With the COVID-19 pandemic only accelerating the move to online tools and applications, entrepreneurs will require robust and reliable digital platforms when seeking support.
Finally, we recommend that SBA develop an emergency plan for how to respond to a far-ranging crisis like the COVID-19 pandemic should such a situation arise again. The agency has experience helping small businesses prepare for and respond to disasters but, like many businesses, it was caught off-guard by its newly strengthened role during the pandemic. Having a plan in place will ensure prompt and reliable assistance to small businesses and their employees in their time of need.
