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Countless small businesses are facing financial turbulence. And while Congress tries to help them fund operations, many business owners aren’t reaping the benefits they hoped for.
Unfortunately, provisions in the CARES Act intended to provide financial support are benefiting big corporations more than local businesses, the lifeblood of America’s economy.
According to a recent report, small and mid-size businesses make up 44% of America’s GDP and nearly half of private-sector employment.
Why are bigger companies reaping more of the benefits?
In response to the current economic client, the Federal Reserve said it would finance loans made by commercial banks to help small and mid-sized businesses. However, the Fed must also adequately secure loans before handing them out, as it can’t take substantial credit risks. Because of this, many loan applicants are getting treated like small fish in a crowded and unequal pond. Since many large corporations have substantial budgets and higher credit scores, the Fed often sees them as low-risk borrowers. But since it’s difficult for the Fed to assess a small or mid-size business’s “creditworthiness,” screening those with conflicts and compensation concerns creates issues.
Paycheck protections lack proper funding
The Paycheck Protection Program (PPP) intended to provide low-interest loans to small and mid-size businesses. And if businesses use it to keep employees on the payroll, it can turn into a grant. However, the $350 billion allotted towards the program couldn’t cover the demand. Ultimately, it quickly dried up, leaving businesses who worked hard to qualify out of luck.
Recent changes pose new challenges for small business
Even with the quick and swift release of the CARES Act, it’s apparent the pandemic will affect small and mid-size business operations for the foreseeable future. And while the decisions Congress makes are out of many owners’ control, there are other resources they can utilize to receive funding.