Although the COVID-19 crisis and subsequent recession have had a strong impact on the entire U.S. economy, small businesses have suffered a severe blow. Many were forced to close entirely when closure measures were imposed earlier in the year in a bid to quell the outbreak, and large numbers are still struggling to recover.
Fortunately, small businesses were entitled to some relief to overcome the crisis. In fact, the much talked about Paycheck Protection Program was critical in helping to minimize layoffs while allowing companies to continue operating.
But despite the difficulties small businesses may have faced in recent months, most have managed to recruit enough staff to return to pre-pandemic staffing levels, according to a new report from the Gusto payroll service. Specifically, the hiring of small companies grew 2.4% in June.
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That doesn’t mean things are (small) businesses as usual. While staff counts may have increased to the point where they hover near pre-COVID-19 levels, many small business employees are still struggling with reduced wages and hours. In fact, the number of salaried workers who have experienced at least a 10% pay cut increased by 80%, compared to pre-pandemic levels. And in the absence of additional relief, small businesses may need to further reduce workers’ hours and earnings to avoid having to resort to layoffs.
One round of APP funding was not enough
The reason so many small business employees are reducing their hours and earnings could be down to the fact that many companies that received PPP loans no longer have that money. PPP loans were capped at 2 1/2 times a company’s monthly payroll costs, and many companies received those loans in April or May.
At this point, it is likely that much of that money has been depleted. While those loans may have been instrumental in restoring jobs, the fact that hours and wages are reduced gives a clear idea: Small businesses need additional relief.
Of course, PPP loans are not the only financing option available to struggling small businesses, but their appeal was due to the fact that they were totally forgivable, provided 60% of their profits were used to cover payroll expenses. . Even among small businesses that were not eligible for PPP loan forgiveness, those loans were still attractive. With a two-year maturity and an interest rate of just 1%, they represented an extremely affordable form of loan.
In the coming weeks, lawmakers will be tasked with crafting a second aid package to follow the CARES Act that was passed in late March. If that aid package doesn’t include provisions for small businesses that are comparable to PPP or a second round of PPP loans for businesses that have already received them, staff counts could drop dramatically during the latter part of the year.
Even if that doesn’t happen and small businesses They are Somehow able to support staff, there is a good chance that the people who work for them will have financial difficulties by virtue of being underemployed for at least the rest of 2020.
