As U.S. small businesses crumble, their employees overload unemployment websites, and the software used to hand out loans crashes, it’s important to know there are alternatives. Like this one, from Switzerland:
“I’ve never experienced anything like it,” Alberto Belloli, head of Belloli, a family engineering business in the canton of Graubunden, told the Financial Times. “I applied on Friday afternoon and we had the money on Monday morning. It was a one-page form.” The money, when it arrived, meant that Mr. Belloli could pay his staff and has time to put measures in place to protect his business.
Congress’ rescue plan to protect small businesses and self-employed workers was supposed to do much the same for tens of millions of Americans starting on Friday. So far, it hasn’t worked out that way. At a time when every day counts for businesses teetering on the brink of disaster, aid from Uncle Sam has run smack into a host of red tape, profiteering, and software bottlenecks.
Out of the gate, there were problems aplenty. The SBA rescue loans are administered by for-profit banks, and naturally, they made for-profit decisions. Bank of America said it would only work with current business customers, for example. (After Internet outrage and complaints from Sen. Marco Rubio, the policy changed. “Please, don’t be a bunch of jerks,” were his exact words.)
Still, don’t confuse small business help with unemployment benefits. SBA grants and loans are not doled out in some fair, agnostic way. Banks are prioritizing their best customers, of course. That leaves plenty of small owners scrambling to find a dance partner.
Of course, there are lines at the virtual bank door, lines at the teller, and lines at the SBA. In fact the SBA’s system for processing loans, known as E-Tran, was down for at least four hours on Monday. This is not Switzerland.
The most promising part of the program was a $10,000 “advance” that was supposed to be made available to each business within 72 hours of an Economic Injury Disaster Loan application. That sounds a bit like the Swiss model, but it was just a tease. An SBA clarification issued this week deeply devalues that part of the law. Only businesses with 10 or more employees can get $10,000; the 72-hour advance is limited to $1,000 per employee, up to 10. Now you see the problem: $1,000 isn’t going to keep an employee hanging around while you wait for the SBA to get it’s E-Tran system back online.
And remember, the door for self-employed and gig worker aid doesn’t even open until Friday.
It doesn’t have to be this way.
According to the Financial Times, Switzerland unveiled its $20 billion package of emergency loans to support small businesses on March 25. In its first week of operating, 76,000 businesses got help. So the size of the rescue plan was doubled.
Germans are enjoying the fruits of a similarly sensible social safety net. That country’s program came out of the gate with a few hiccups, but it’s getting rave reviews now.
“I’ve never seen anything like the German loan guarantee program: instant loans for SMEs, 100% guaranteed, up to 3m of revenues (max 800k), only condition is profitable last year or on average last 3y years. 10y with 2y holiday,” wrote Johannes Borgen on Twitter. Sander Bagen replied: “Also the self-employed help was crazy fast, my mom filled out the website and had 5.000 euros on her bank account two days later.
Artnet.com reported that artists had luck getting immediate help in Germany.
“You apply for a grant from the government on a Friday, submitting nothing more than your mailing address, a tax number, banking details, and a legal form with your company’s name. On Tuesday, you wake up to find €5,000 has been wired into your account,” the site said. “Many Berlin artists reported receiving money within just a day or two of submitting their application.”
Here’s the thing: the U.S. is slow to help the struggling. That’s not a bug, it’s a feature. When U.S. unemployment websites topple over, and the SBA loan system crashes, that’s because our country doesn’t like “handouts.” We don’t properly invest in our social safety net structure. We want to make getting handouts hard, because some people believe that creates the right incentive structure. There’s truth to this, of course, but it serves us very poorly at a time like this. We have neither the infrastructure nor the trust to quickly help millions of businesses and tens of millions of employees who are hurting right now.
The simple solution to our current problem was near-instant grants and loans to businesses so they could keep paying staff, and we could all ride out this game of freeze-tag we’re playing to beat the virus. But that structure does not exist. Not yet, anyway.
It could! Perhaps there would be more fraud. But the alternative is what we have today. And we have plenty of fraud anyway. I heard from an applicant today who was told he’d have to pay a $2,500 fee to apply for an SBA loan. That’s illegal, but he was approached while begging for help on a chat board devoted to navigating the crazy SBA loan system. Our chaos driven, red-tape hampered lifeline, combined with desperate borrowers, is a recipe for that kind of fraud.
Look: Unless you want the post-coronavirus world to be nothing other than Walmart, Amazon, and people drinking in their basements, we’d better get creative, fast. Get these small companies money fast.
To help jump-start you imagination, here’s one more story from Switzerland:
“It took Matthias Knaur only a minute or two to complete and scan the single-page form for a liquidity lifeline from the Swiss government. About 30 minutes after sending it, the money was in his company’s account.”