SBA Must Consider All Small Business Costs When Granting Loans

As individuals and families take steps to protect themselves from the coronavirus, the possible effect of public health policies on the economy and their ability to earn a living is in the back of many people’s minds. Americans could be forgiven for admitting to being equally scared of the chance of contracting the virus and the prospect of damaging economic effects stemming from government restrictions on travel and association. 

Nowhere is this fear of economic consequences felt more strongly than among our nation’s 28.8 million small businesses. These businesses comprise 99.7 percent of the U.S. business community and employ 57 million people. They operate with thin margins and tight cash flow. Right now, many of them are standing on the cusp of insolvency and for those small businesses that rely on travel, tourism and our $586 billion recreation industry, the threat is existential. 

These are the businesses bearing the brunt of travel restrictions and bans on large gatherings. They are seeing unprecedented closures happen at places like Walt Disney World, Universal Orlando and SeaWorld, and parks around the country. For this hardest-hit segment of the small business community, there is more to the challenge than loss of revenue from shuttered doors and cancelled events. Businesses that operate in tourism, recreation and events use a model in which customers pay in advance for a service or experience not yet delivered — think of wedding venues, concert halls, sporting venues or caterers. Mass cancellations have already taken place and consumers are going to need their money back. This means that, not only will these businesses see a dramatic decrease in future revenue, but they are also on the hook for refunds. The damage from lost revenue is bad enough, but from the need to return payments to customers for services or experiences that can no longer be delivered, there may be no coming back. 

For this reason, it is imperative that policy to mitigate the effect of COVID-19 on small businesses is comprehensive. First and foremost, policy must inject liquidity into small businesses immediately so that businesses can continue to pay their employees during the economic crisis. Recent announcements by the Small Business Administration (SBA) spoke to the availability of Economic Injury Disaster Loans for up to $2 million dollars for hard-hit businesses. 

Critically important, however, is the additional need to allow small businesses to incorporate the costs of certain liabilities — such as refunds to consumers — into any SBA program. More than this, existing loan forgiveness programs must be extended to small businesses for refund costs.  Without this consideration by the SBA, the burden of refunds means it is likely that thousands of small businesses will not be able to survive the spring, that tens of thousands of employees will lose their jobs, and millions of consumers will never be refunded money to which they are legally entitled, and that they are going to desperately need. Beyond the immediate relief, such action could also provide a needed stimulus to the economy by simultaneously keeping countless small businesses solvent as they return money to consumers. 

That the task of the government in managing the COVID-19 crisis is daunting, is obvious. The policies formulated in the next few days and weeks will have consequences that will affect lives, in terms of both health and economic livelihood. It is a mammoth job, and in this case, requires our leaders to truly understand a situation in which small businesses, suddenly experiencing a precipitous drop-off in customer numbers and revenues, are simultaneously obliged to provide relief in the form of refunds to struggling consumers as well. 

It is a once-in-a-lifetime challenge, for which, fortunately, the SBA has the resources, policy and capability to address. It is critical to the small business sector that policymakers recognize this and empower the SBA to act on the issue of refunds. Only by doing so, can damage to the small business sector be limited, and the prospect of business-as-usual as the virus crisis wanes, become realistic again for America’s small businesses. 

Fredy Burgos is the owner of Designer Windows & Siding, a Northern Virginia-based home improvement business.

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