One year into the Paycheck Protection Program (PPP), it is clear that the smallest businesses in America—particularly those owned by minorities, women, and veterans—struggled to access the government support. And now, just as recent regulatory changes have finally prioritized them, the program is set to expire May 31, 2021. To ensure these businesses survive the challenges of the Covid-19 pandemic, PPP should be extended until the end of 2021 and replenished with at least $75 billion.
Despite some vocal critics, obvious shortcomings, and ever-changing rules, PPP has largely been a success. For many businesses, it was the intended lifeline for surviving the Covid-19 pandemic and shutdowns. But, for many other businesses it wasn’t enough, and they became casualties of the economic effects of the pandemic. Thanks to the Economic Aid Act (EAA) signed by President Trump in December 2020 and the American Rescue Plan (ARP) signed by President Biden in March 2021, we are now in the third round of PPP funding. The smallest businesses are finally getting what they need, but most observers are predicting the funds will run out prior to the May 31 deadline.
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Positive impact of bipartisan regulatory changes
In December and February, there were three critical regulatory changes that collectively and meaningfully addressed the needs of businesses with fewer than 20 employees as well as minority, women, and veteran-owned businesses. In December President Trump increased the origination fee so smaller loans, typically $10,000-$15,000 each, became profitable for more lenders that previously had been ignoring the smallest businesses. In February, President Biden simplified rules for independent contractors and sole proprietors, allowing them to use gross income rather than net income to support their loan applications, and set aside $1 billion solely for these businesses.
And, perhaps most helpful, the February rules also created a 14-day exclusive loan application period for businesses with fewer than 20 employees, which are 98% of U.S. small businesses. A March 9, 2021 Small Business Administration (SBA) study reported that the 14-day exclusive period had the desired impact, showing a dramatic increase in the daily average rate of loans during that time compared to the rate 10 days before. The SBA reported the following statistics:
Minority-owned business applications up 20%, or an additional 1,000 businesses accessing relief each day
Women-owned businesses up 14%, or an additional 600 businesses accessing relief each day