My wife Charlie is a bookkeeper who’s business clients are coping with the coronavirus pandemic/economic crash in their own ways. Our son Jonathan is also a bookkeeper, helps my wife with her clients, and has some of his own.
They are both trying to help their clients deal with the drama and help in any way they can. One of the things that they’re doing right now is helping the clients fill out SBA (Small Business Administration) forms for their share of the $350 billion in “Lifeline” disaster funding recently approved by Congress.
The SBA forms are easy to fill-out; in fact, they are probably too easy (more to follow on that). The idea is to determine how much temporary funding a business qualifies for.
Evidently, the Lifeline funding is hoping to keep businesses alive for 2-1/2 months while we go through the worst of the pandemic. (Let’s all hope that it’s only that short of duration!)
So, what the SBA is asking is for the business to identify their average payroll, rent, and utilities costs per month, multiply that times 2.5, and the product is the amount that the business may be qualified for through the Lifeline program.
I realize that this Lifeline funding program was quickly thrown together, and I know why: it’s an election year, and the Trump Administration can’t have the economy totally tanking without appearing to help affected businesses and employees. So, the orders from Headquarters were simple: “Start printing money and distributing it throughout America as soon as possible”.
I understand completely.
However, I think this hastily conceived “livesaver” is going to become an anvil around the President’s neck, from a political perspective.
First, going back to the SBA funding application, at no place in the document does it ask if your business is currently impacted negatively by the pandemic. Some businesses are doing fine right now, like one’s that have been identified as “essential” by government. Several of Charlie’s and Jonathan’s bookkeeping clients are doing fine right now, including an urgent care hospital, a veterinary care hospital, a general contractor, and so forth. Others, like a food broker, a church and its pre-school, and a salon, are suffering. Those latter ones need some help, for sure. But, all of these businesses are going to apply for the Federal money…because it’s out there. And, nowhere on the form does it say they can’t apply.
As the saying goes, “It doesn’t hurt to ask!” It’s the SBA’s job to determine if you’re eligible, right?
Secondly, the SBA application form suggests that the business use the average monthly payroll in 2019 as the standard for eligibility, probably because this amount could be verified by some SBA clerk checking the payroll expenses against the applicant’s 2019 tax return. This is going to take time by the SBA just to verify the calculation. And, even when verified, it will not necessarily have anything to do with the number of employees and the payroll cost of the business today…in 2020. Some failing businesses (for reasons other than the pandemic) may have shut down or laid off employees early in 2020 prior to the economic collapse; they will, however, be able to file a claim for Lifeline funds under their 2019 spending history.
What is going to happen, I predict, is that virtually all small businesses in America are going to file claims for the SBA “Lifeline” funds, whether deserving or not, and the volume is going to swamp the SBA. They will not have enough funds (i.e. Congress “only” allocated $350 billion) for starters, so someone will have to decide who really needs the money. And, the bureaucratic effort required to determine this important question will be Herculean, because the application form wasn’t sophisticated enough to ferret out businesses that obviously shouldn’t be considered.
So, I believe that the SBA is going to overwhelmed by this task and that the money needed to keep needy businesses afloat and payrolls paid…is going to be late in arriving. Possibly, too late to help.
President Trump is going to get a black-eye for this hastily-conceived political band-aid, even though the Administration’s intention was good.