Government loans helped saved millions of jobs, but the money is running out
WASHINGTON — The surprising jobs rebound in May, which fueled hopes for a fast recovery from the pandemic recession, was almost certainly due in large part to tens of billions of dollars of forgivable government loans to small businesses.
Known as the Paycheck Protection Program, the initiative — part of the much larger COVID-19 relief package enacted by Congress when the pandemic first began pounding the economy — has to date lent more than $512 billion to struggling small businesses, including about $67 billion in California. The money does not need to be repaid if funds are used to keep workers on the payroll and other conditions are met.
The novel idea to discourage layoffs has no precedent in past economic crises.
And without it, businesses such as Dune Coffee Roaster in Santa Barbara would not have been able to bring back most of the 48 employees furloughed when the outbreak hit.
That’s crucial now because the program is set to expire soon and neither President Trump nor congressional Republicans have shown much interest in renewed aid.
Dune Coffee’s owner, Julia Mayer, was one of the earliest recipients of a PPP loan in mid-April. She says it was a godsend, keeping alive a business that she and her husband financed in 2009 with credit cards and $5,000 from her grandmother. It has grown to three stores and $4 million in sales last year.
But the Mayers and many other borrowers will run out of PPP funds at the end of the month. The big worry is that many will not be able to keep paying their workers as they reopen in the face of a still-serious pandemic.
“We’re headed toward the financial cliff,” said Sarah Crozier, spokesperson for Main Street Alliance, a small business advocacy group.
A solid recovery in the labor market is critical for a healthy and sustained recovery in the overall economy. Small businesses, or those with fewer than 500 employees, account for almost half of the nation’s jobs.
PPP loans were designed to cover an employer’s payroll costs for only about eight weeks, serving as a stopgap until things got back to normal. Now, it looks as though legislators seriously overestimated how quickly the country would return to “normal.”
Even as states have begun reopening their economies, significant business restrictions remain in many locales. And current data show that parts of the United States that initially saw relatively few coronavirus cases are now leading the country in new infections.
Under those circumstances, it would not be surprising if many consumers remained fearful of getting infected and reluctant to venture out as they used to do.
Despite a strong bounceback in consumer spending last month, the gains still left overall retail sales well below year-ago levels. And even with the onemonth improvement, most businesses are nowhere near where they were before the health crisis.
Sales are only half of what they were a year ago at Dune Coffee.
“The only way we’re doing what we’re doing is because we have this ($350,000) loan that’s helping us,” said Mayer, 40, adding that two of her landlords also reduced rents. But “we’re pretty much out” of PPP money, she said. “We’ll have one more payroll run and that’ll be it. And that’s a little bit scary.”
As of June 12, almost 4.6 million businesses got PPP loans totaling more than $512 billion, according to the Small Business Administration, which is running the program. About two-thirds of the borrowers could use up all of their loan proceeds by the end of June, according to a survey by the National Federation of Independent Business, a small employer lobbying group.
The PPP is a big “wild card” for the labor market, said Bernard Yaros, an economist at Moody’s Analytics.
According to his calculations, it was the PPP that largely explained the unexpectedly good jobs report earlier this month.
Whereas analysts were expecting about 7 million fewer payroll jobs in May, the Bureau of Labor Statistics’ preliminary data showed an actual net increase of 2.5 million jobs. The unemployment rate dropped to 13.3% in May from 14.7% in April, although officials said both months’ figures understated the number of people laid off and considered unemployed.