I thought it would be interesting to review Joe BidenSmall Business Policies to see the impact you can expect if he wins the election. Today, I am concentrating on Joe Biden. I am also providing my thoughts on his policies.
1st Biden Policy: Establish a True Small Business Fund:
The first policy I found had to do with the Payment Protection Program which was released earlier this year. Biden wants to set-aside $60 Billion in funds for smaller lenders and community-based financial institutions to get resources into the hands of deserving small businesses in vulnerable communities. Biden wanted the Payment Protection Program or PPP to reserve half of the funds for small businesses with 50 employees or less.
Biden Would Limit Who Qualifies
He hopes that this would stop the bigger and more sophisticated small companies from receiving the funds before the smaller small businesses can receive the fund. In essence, ensuring that mom and pop businesses like beauty salons, barbershops, diners, and local auto body shops can receive funding if needed. Biden claims that minority business owners are left out cold or that businesses with fewer than 20 employees receive only about 20% of the money even though they make up about one-third of the payroll.
My thoughts on Biden’s 1st Policy.
Many community lending institutions have moved away from community-focused to Federal focused. As a result, small business lending is less of a priority. For the last two decades, small business lending has reduced by more than half. Why the decline? It is due to multiple factors. One of the costs is the high transaction costs of small business loans, and regulators are pushing banks to hold more capital against business loans than for consumer loans. As a result, small business lending is costing lending institutions more.
The result is it is challenging for small businesses to find banks willing to lend to them. It is common for small businesses to reach out to multiple lenders and spend three to four days filling out applications before finding a bank willing to work with them.
Banks Are Starving Growth
Instead of promoting the recovery, bank credit markets are starving growth and job creation for some small businesses.
Now the blame is not all on the lending institutions. The Government has increased oversight on lending institutions, and as a result, these institutions are not willing to take a risk on many small businesses. Also, many lenders are saying that they cannot find credit worth companies to loan money too. Credit standards have changed due to the recession in 2008.
Smaller Loans Less Profitable for Lenders
Let’s face that small business loans less than $1 Million are less profitable for lending institutions. Small business lending contains more risk than large business lending. Remember that small businesses are impacted by the economy more, have higher failure rates, and fewer assets to collateralize the loan.
The transaction costs to process a $100,000 loan is comparable to a $1 Million loan but has less profit for the lending institution. As a result, banks are less likely to engage in lending at the smaller dollar level. Many lending institutions will refer their customers to credit card products that have higher yields.
Biden and Congress failed to Do Their Job
Now, if Congress had done its job, it would have realized these facts and came up with a better way to get the money in the hands of small businesses. After all, the Small Business Committee has seen a decline in small business lending for years. We cannot continue to raise the debt ceiling without consequences. Unfortunately, it will be our grandchild that may face these consequences. Whether you realize it or not, taxes are going to increase. There is no choice. WE NEED A BALANCED BUDGET NOW.
Biden Policy: No Unjust Enrichment: Keep Well-Off Business Owners from Using any Program to Unjustly Enrich Themselves.
Biden is concerned that high-paid business owners that were not harmed by the pandemic were receiving funds that they did not need. He also wants ways to expedite loans with less unnecessary paperwork to hard-hit businesses. He also wants heightened scrutiny of certain types of small businesses like consulting, accounting, legal, tax advice where executives and owners are making above $500,000.
My Thoughts on Biden’s Policy #2.
There have to be checks and balances. You cannot have less paperwork and still scrutinize businesses making sure that only those needing the funds receive the money. If you lessen the burden of applying to the programs, then you have to accept the risk that those businesses in which you did not intend to receive the money will receive it.
I also do not place the blame totally on President Trump as it was Congress that created this program. Both the House of Representatives and the Senate approved the emergency funds. Both sides are equally to blame for this mess. You made the rules that SBA had to implement. They have to abide by those laws.
It is easy to sit here months later and make these calls. It is much more challenging when you are in the thick of it, trying to make these decisions.
Biden Policy #3. Make Sure That Program’s Terms Actually Help Small Businesses.
Biden wants to change the rules to the PPP that would ensure deserving small businesses receive all the help that they need for as long as they need to include:
- Biden wants to guarantee that every qualifying small business will get relief rather than capping the fund in a way that forces small firms to compete against each other.
- My Thoughts – YOU have to have a ceiling cap; otherwise, the spending would never end. It would be better for you to set a ceiling with an auto-approval of xx% based on the number of applicants.
- I am concerned about how the debt ceiling keeps getting raised by both sides of the house. At some point, we need to limit our spending and have a balanced budget. Or there will not be a future for our grandchildren.
More Money for Businesses
- Biden wants more generous loans that allow small business in need to keep workers on the payroll and cover fixed costs for the duration of the crisis. It’s no use paying for payroll if a small business cannot keep the lights on.
- If my memory serves me, there was an item in the PPP loan that did allow businesses to use the funding for other costs outside of payroll. This number was relatively small, but it was in there.
- Now, I am sure that not everyone will agree with me, but each of these crises, whether we call them a pandemic or recession, has always resulted in small businesses going bankrupt and closing their doors. You cannot save every small business, nor should you try. The business owner should have planned and kept some earnings not only for growth but to support the company when the economy has a downturn. Many businesses spend all their payments each year and never plan for a crisis.
Auto-extend Payroll Forgiveness
- Biden wants to auto-extend the eight-week limitation so that payroll forgiveness for the duration of the crisis. There should be flexibility to allow businesses to decide when the covered period begins.
- I have to say that I am not for payroll forgiveness. It should be a low-interest loan. Automatically extending the eight-week time limitation is wrong. The business must demonstrate need before granting an extension. Many companies have recovered. To expend the payroll forgiveness for companies that no longer need the program is unnecessary.
Audits To Prevent Abuse
- We are establishing a look-back audit mechanism to police against abuse based on a review of net business income.
- You cannot police against abuse based on a review of net business income. Someone would need to review quarterly financials to make that determination. It would also require you to review all the business financial statements to decide. Business owners will increase their expenses to avoid the acquisition of abusing the system.
Who Will Perform Audits?
- Who the hell is going to review these statements or even as you suggest, just the net income? Is this going to be accomplished through the IRS or SBA? Can you automate this tasking, or are you going to have to hire more personnel to do this? At what point do costs outweigh the possible abuse?
- I have to be honest; I cannot see where Mr. Biden has ever operated a business. He is just saying things that he thinks the American people want to hear—a typical politician. No, I am not a Trump fan either.
I do not typically get involved in political matters. I have stayed away from them as much as I can. However, I thought my subscribers would want to see the possible impact on small businesses if Mr. Biden wins the election. Stay tuned because, in two weeks, I am doing the same thing with President Trumps Policies. So make sure that you subscribe, share, hit the notification bell. And until next week, be safe.
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