Thousands of companies borrowing from layoffs from the US aid fund scheme.


A significant number of American small business owners who got money from the government-backed small business coronavirus relief program say they will end up laying off hundreds of thousands of workers anyway.

Up to 653,000 small businesses that received forgivable awards, 1% of loans from Payment Check Protection Program It could start cutting employees as early as next month as its federal funds run out. Additionally, 70,000 of those companies are expected to lay off at least 10 workers each.

Those findings come from a survey by the National Federation of Independent Businesses that was released this week. It found that 14% of the 4.6 million companies that have received Paycheck Protection Program funds are considering firing workers when they run out of their government loan funds.

The Paycheck Protection Program was one of the first aid programs to be launched after the approval in late March of the CARES Act, the government’s financial assistance package for the coronavirus. Its roughly $ 520 billion in loans to small businesses with fewer than 500 employees have been credited with saving jobs and softening the blow of the economic downturn, although there has been no significant study on the economic impact of the program.

Another $ 140 billion in PPP money has yet to be distributed, but critics say the lack of flexibility in how small businesses could spend funds and the confusing rules about what would make loans totally forgivable, interests and everything scared some borrowers. A slow start to the program and the fact that the banks seem to have favored bigger borrowers, You may also have turned down some family business owners who were expected to be the main beneficiaries of the program.

The program began lending in the first week of April, although most companies did not end up receiving funds until early May. Initially, companies were required to spend their entire loan within two months to qualify for forgiveness. That was extended to 24 weeks in early June.

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But the NFIB survey found that more than 40% of companies that took PPP loans hoped to end up using all of their funds in three months anyway. That means some companies may run out of PPP money as early as next week. The program itself is ending.

The deadline for companies to apply for PPP loans is June 30. While that may be extended, little is said about allowing companies that have already borrowed from the program to return for another round of financing.

The small business loan program is also ending at around the same time that government-enhanced unemployment benefits are also running out. That double whammy, coupled with the fact that Covid-19 cases appear to be growing in several states, could jeopardize the economy this summer.

Economic data shows that layoffs decreased in early April, shortly after the PPP was launched. That has been the main evidence that helping small businesses was successful in relieving the pain of closing the coronavirus. May unemployment rate It was also significantly less than expected.

But economists have said that the PPP will only be successful if companies cancel plans to cut workers, rather than just delaying layoffs for a few months.

“If the PPP achieved its primary goal of preventing small businesses from laying off their staff and closing their doors permanently, it will take a few months to determine,” wrote Diego Zuluaga, economist at the conservative think tank Cato Institute, in a blog post this week. . . “If the same ratio of PPP borrowers to non-borrowers ends up closing, then the PPP will have been a waste.”

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