4 Ways the Biden Administration Can Better Support Small Businesses The road to recovery for small businesses will extend long after the global health crisis ends. Here are a few long-term solutions for the president's team to consider to support the smallest of businesses.
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We are now a year into the global health crisis and one thing hasn't changed: Small businesses are suffering. While small businesses are a vital economic driver and account for 47 percent of employment across the U.S., about one in six has closed since the start of the crisis and those that remain open are facing severe dips in revenue.
Initiatives such as the Paycheck Protection Program (PPP) have provided short-term relief for many businesses, and President Biden's sweeping Covid-19 relief law will provide further aid. The law earmarks billions for small businesses, providing emergency funding, new grant programs and extra PPP reserves.
But still, the road to recovery will extend long after the end of the health crisis. Even with the benefits of a predicted post-crisis boom, driven by the money consumers saved over the past year and the fact that the economy sustained less structural damage than feared, we must invest in long-term solutions to better support the smallest of businesses. The Biden administration has numerous opportunities to do so, starting with these four areas:
1. Implement a progressive corporate tax rate, driving a more equitable economy
As part of his "Build Back Better" agenda, President Biden is exploring an increased corporate tax rate, reversing tax cuts from 2017. The country's corporate tax rate is currently 21 percent, and Biden suggested increasing it to 28 percent. The recent relief package included a number of tax updates, including revisions for multinational corporations and taking away deductions for certain public companies, but none as headline-grabbing as a corporate tax increase that could be funneled back into small business support.
If the Biden administration wants to truly level the playing field for small businesses, a progressive corporate tax rate could be a start. Today's tax code levies the same rate on all businesses, ranging from locally owned bookstores and boutiques to national banks and software companies. A better approach would be to tax the largest corporations at a higher rate than the smaller ones, using a tiered system. Likewise, we need to prevent the largest corporations from using loopholes to pay nearly nothing in federal taxes. If Biden wants to give small businesses a fighting chance, rethinking the tax code is a promising, if difficult, way to do so.
2. Increase funding for the SBA to invest in the long-term health of small businesses
The Small Business Administration (SBA) oversees PPP, which has undoubtedly played a crucial role in helping businesses through the crisis. The rollout wasn't perfect, as the SBA had to mobilize quickly without compromising the integrity of the program. Crucial updates, such as revisions for Schedule C filers, came too late for many. To help the SBA provide aid after PPP loans are exhausted, the Biden administration needs to increase SBA funding, perhaps through an updated corporate tax code. Disasters and recessions often dictate supplemental funding, but the agency's baseline funding typically rests at just over $1 billion. The health crisis led to the agency's highest annual budget of $762 billion in FY2020, but FY2019's budget was $1.2 billion. For perspective, the U.S. Fish and Wildlife Service receives $1.5 billion annually on average, and the largest federal agencies receive hundreds of billions each year.
While PPP provided much-needed temporary relief, far too many small businesses shut down over the past year. These businesses generate almost half of the U.S.'s GDP, and they deserve a robust federal agency with the budget and resources to help them weather any storm rather than one that relies on temporary programs in times of crisis.
3. Allow fintech companies to participate in more federal aid and loan programs
Full disclosure: This is my industry. But fintech startups are a prime example of how agility and speed can better serve small businesses. During the rollout of PPP, fintechs played an outsized role in genuinely helping the smallest and most vulnerable businesses. Almost 70 percent of PPP loans from fintechs average less than $150,000, signaling that they reached the smallest of small businesses. Likewise, fintechs played an outsized role in extending PPP loans to minority-owned businesses.
PPP was one of the first of the SBA's programs that fintech could easily participate in. Greater funding would allow the agency to build infrastructure that easily integrates with other technologies, allowing fintechs to participate in even more programs, such as 7(a) or 504 loans. Businesses would benefit from a digital approach, which allows for faster loan approvals and more inclusive access to capital.
4. Refresh programs to ensure small businesses can easily and quickly apply for aid
While fintechs' participation can greatly improve loan programs, the Biden administration should also consider whether the biggest loan programs actually accomplish their intended goals. Take for example 7(a) loans, the SBA's primary financial assistance program for small businesses. With a stack of paperwork involved, applying for these loans is incredibly challenging. And qualifying has proven even more difficult for many businesses.
To truly serve the businesses that loans like these were created for, this administration should revise programs and go beyond a one-size-fits-all approach. As PPP proved, certain industries such as restaurants need individualized support, and more specialized programs can benefit the entire economy. They should update programs' respective rules, including a simplified application, clearer criteria for qualifying and an expedited approval process. These moves, combined with a push to digitize the infrastructure that supports them, will further democratize the loan process, helping small businesses access the capital they need to get started.
Businesses can emerge from this global health crisis and its economic fallout stronger than before as long as the country puts the right support structures — like updated loan programs and more equitable tax codes — in place. The promise of a post-crisis recovery is starting to be realized, but we need to strengthen our small businesses if we want our economy to thrive.