Stimulus May Be In The Offing, But Will SMBs Line Up?

Stimulus payments are on the way – maybe. But for the Main Street SMBs that are navigating the pandemic with a mindset more sanguine than had been seen just a few scant months ago, maybe it’ll be money for a rainy day yet to be seen (though, to be fair, the clouds have been here for a while).

On Tuesday (Oct. 6), Federal Reserve Chairman Jerome H. Powell said in remarks made to the National Association for Business Economics that economic support, and a lot of it – read: stimulus and other payments – should be on the radar.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said, as quoted in numerous publications, including The New York Times. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth.” He added that “by contrast, the risks of overdoing it seem, for now, to be smaller.”

“This will be the work of all of government,” Powell said at another point. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

The implication seems to be that, at this point, getting money out into the economy in general is the way forward (though at this writing, President Donald Trump has just stated that he has instructed his team to end talks with Democrats on a fiscal stimulus package until after next month’s election).

And as noted in this space last month, recent remarks by Powell and U.S. Treasury Secretary Steven Mnuchin on Capitol Hill seem to dovetail with Tuesday’s recommendation that it’s best to err on the side of the stimulus.

Appearing before a House committee in late September, the duo said more work is necessary to address small business lending, in addition to getting more funds to individuals and families.

With a bit of granular detail into business-focused efforts – chiefly the Fed’s Main Street Lending Program and other emergency measures – Powell said 13 lending facilities have helped unlock $1 trillion of business funding. “Many of the businesses affected by the pandemic are smaller firms that rely on banks for loans, rather than public credit markets,” he said at the hearing. “[The Main Street program] is designed to facilitate the flow of credit to small and medium-sized businesses. Thus far, $2 billion has been extended or is in the pipeline across 230 loans.”

But in data released last week tied specifically to the marque Paycheck Protection Program (PPP), where the more than five million small to medium-sized businesses (SMBs) that had received $525 billion (with the promise of loan forgiveness as long as SMBs used 60 percent toward payroll and 40 percent to other allowable expenses) had not seen a single loan forgiven. Part of that is due to what is being blamed in recent reports as a lack of communication between agencies and enterprises spanning banks, the Small Business Administration (SBA) and the Treasury Department.

For the firms surveyed by PYMNTS in recent months, the loans have had relatively few takers. Looking at the impact of the pandemic at the six-month mark, we found that through the spring, the share of SMBs that had taken the plunge to apply for SBA loans stood at about 33 percent (this includes all SBA loans).

And in the latest spate of data collected in August, SMBs seem a bit more confident about their fortunes – and on their chances of survival. In August, 54 percent of SMBs surveyed said they feel confident about staying open through the pandemic – better than the 42 percent who had embraced that same sentiment in April. Roughly 65 percent of SMBs said their finances were unchanged through that timeframe, and only 12 percent said financial situations had deteriorated. Roughly 61 percent of restaurants said they were confident they wouldn’t need to close. Part of the relative stability comes amid the great digital shift, where meeting customers online has helped cash flow and revenues, at least a bit.

All of which goes to say, in looking at stimulus and relief that may be offered to SMBs down the road, and to paraphrase an old baseball movie – if you offer it, will they borrow?