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DIFFICULTIES WITH THE CARES ACT – A PRIMER FOR CELL PHONE STORE OWNERS

A few months have past since the COVID-19 crisis started. The US government had presented a very important and ambitious economic plan in response. The intentions were to provide economic support for businesses. In this article we’ve decided to review 4 important sources which describe and show how the CARES ACT is actually working with enormous difficulties. 

The articles included are the following:

  1. NYTimes Few Minority-Owned Businesses Got Relief Loans They Asked For
  1. NYTimes Small Businesses Wait for Cash as Disaster Loan Program Unravels – Owners were supposed to be able to get up to $2 million. Now they’re being told the cap is $15,000 — if they can get any answers at all.
  1. Forbes The Design Flaw At The Heart Of The CARES Act
    https://www.forbes.com/sites/kathrynjudge/2020/04/20/the-design-flaw-at-the-heart-of-the-cares-act/#4c0ca1906bed
  2. Prevue Meetings + Incentives Difficulty With the CARES Act
    https://www.prevuemeetings.com/coronavirus/difficulty-cares-act/?gclid=CjwKCAjw-YT1BRAFEiwAd2WRtntvaQN39RefHiXvPiOKVXvELH4gMlPyJAWsK6OfJ2SnYKtNRQPIExoCny4QAvD_BwE

Continue reading to get more information about the actual situation.

1. NYTimes- Few Minority-Owned Businesses Got Relief Loans They Asked For 
By Emily Flitter Published on May 18, 2020

The Paycheck Protection Program largely neglected them, a survey commissioned by two equal-rights groups found.

Business owners are struggling to get government assistance under the Paycheck Protection Program, a new survey has found, and many say they are on the brink of closing permanently. The survey, conducted by the Global Strategy Group for two equal-rights organizations, Color of Change and UnidosUS, included interviews with 500 business owners and 1,200 workers from April 30 to May 11. Just 12 percent of the owners who applied for government-backed loans in the $650 billion program reported receiving what they had asked for, and nearly half of all owners said they anticipated having to permanently close in the next six months.

2. NYTimes – Small Businesses Wait for Cash as Disaster Loan Program Unravels – Owners were supposed to be able to get up to $2 million. Now they’re being told the cap is $15,000 — if they can get any answers at all.
By Stacy Cowley Published on April 9, 2020. Updated April 20, 2020

Owners were supposed to be able to get up to $2 million. Virginia Warnken Kelsey, an opera singer whose spring season canceled because of the coronavirus outbreak, said a disaster loan would be a lifeline. Now, business owners who applied are desperate for cash and answers about what aid, if any, they are going to receive. The initiative, known as the Economic Injury Disaster Loan program, is an expansion of an emergency system run by the Small Business Administration that has for years helped companies after natural disasters like hurricanes, floods, and tornadoes.

To speed billions of dollars in aid along, the government directly funds the loans, sparing applicants the step of finding a lender willing to work with them. But in the face of the pandemic, the loan program is drowning in requests. Many applicants have waited weeks for approval, with little to no information about where they stand, and others are being told they’ll get a fraction of what they expected. The program is supposed to offer loans of up to $2 million, but many recent applicants said the helpline had told them that loans would be capped at $15,000 per borrower.

Those funds were supposed to be available to applicants within three days of their application, even if they weren’t approved for a loan. That hasn’t happened, according to more than 400 applicants who contacted The Times. The disaster loan program’s missteps have been overshadowed by the chaotic start of the federal government’s other large small-business aid effort, the Paycheck Protection Program, which started taking applications last week. Applicants to that initiative have faced delays as banks deal with the hasty deployment of a $349 billion program.

Each state had to submit its own formal disaster declaration, and business owners could not apply until their state’s declaration was approved. The disaster loan program issued $1.7 billion in loans in 2006, after Hurricane Katrina hit New Orleans. Congress has approved funding to support borrowing that will far exceed that figure. And even though Congress allocated billions of dollars to fund the disaster loan program, some applicants said S.B.A Deb Wood-Schade, who runs a chiropractic wellness business in Aliso Viejo, Calif.

«I am concerned if I take it I won’t get the additional funds». Senator Ben Cardin, Democrat of Maryland, who pushed for the additional funding through the CARES Act, said the program simply had to have more money. « is limiting Economic Injury Disaster Loans to an initial disbursement of $15,000 shows that there is a clear need for more resources for this program,» he said. The program’s previous peak came in 2006 after Hurricane Katrina.

It disbursed loans of $1.7 billion that year, according to the Congressional Research Service. In early March, Congress allocated funds to support around $7 billion in lending in response to the pandemic. It added another $10 billion through the CARES Act to fund the $10,000 cash grants, saying applicants could get that money even if their applications were denied. If every applicant received the maximum $10,000 grant, the funding would cover around one million businesses.

But more than three million applied for disaster loans last week alone, Joseph Amato, the director of the S.B.A  In response to the demand, the S.B.A. Even early applicants who have been approved for larger loans still have unanswered questions. A retail business owner in California, who spoke on the condition of anonymity because he feared jeopardizing the loan he had been promised, was relieved to be getting the money needed to support his employees but frustrated about the process. The official who requested additional documents, then verbally approved a loan of $500,000. It took more than a week before he got a letter confirming the loan, along with a pile of closing documents to sign.

Business owners who applied later are afraid the funding will run out before their applications are processed. Kevin Smith, chief executive of the software company Wynexa, has spent hours on hold trying to find out about his loan. A loan capped at $15,000 would be nearly useless to Kevin Smith, the founder of Wynexa, a software company in Houston. Smith said.

He was initially told he would have a response to his application by April 1. Several business owners said their frustration was magnified by the Trump administration’s frequent proclamations that small business aid was flowing freely. «Any little glitch, we had worked out within minutes, within hours,» Mr. Trump said on Tuesday about problems with the government’s still-chaotic paycheck loan program. Dave Vanslette, who has applied for that program and a disaster loan, said comments like that were infuriating.

He is still waiting for responses to his applications. «It would be great if our administration communicated the reality of the situation instead of saying the process is working perfectly,» said Mr. Vanslette, who runs FairwayIQ, a software company in Waltham, Mass.

3. Forbes The Design Flaw At The Heart Of The CARES Act
Kathryn Judge. Published on April 20, 2020.

The economic crisis stemming from COVID-19 made speed and size the order of the day. Too much of the support is going to large companies when it should be going to the small ones. And far too many of the benefits are flowing to shareholders and creditors, rather than to the underlying enterprise and the people it employs. In the face of a shock the size of COVID-19, it makes good sense for the government to loan, and even give, money to otherwise private companies.

Just as it can be rational for an individual to spend money to obtain a college degree in order to improve future earnings, countries sometimes must spend today to increase the size of the taxpayer base in the future. This reasoning also helps to explain why the CARES Act authorizes the Treasury Secretary to spend so much money supporting businesses. The largest pot of money that Congress allocated to help businesses consists of $454 billion that the Treasury Secretary can deploy through facilities created by the Federal Reserve. Requiring these funds to flow through Fed facilities has benefits.

It ensures, for example, that the Treasury Secretary cannot divert money to businesses that he unduly favors. It could also increase the aggregate amount of new capital available to businesses, as the Fed contributes multiples of the amount that the Treasury commits when they create facilities to use these funds. Small businesses are often particularly innovative and are critical to the long-term vibrancy of society and the economy. Just as importantly, these companies are vulnerable, and if they run out of cash and must file for bankruptcy, they usually are forced to liquidate.

Liquidations destroy a company’s productive capacities and destroy jobs, precisely what the government wants to avoid. Unfortunately, the last few weeks make it clear that the Fed is ill-suited to provide the direct capital support these companies need. Even before the CARES Act was signed into law, the Fed had created two facilities now positioned to provide up to $750 billion in financing for the largest corporations. Just the announcement of these facilities sufficed to lower funding costs for the large companies that qualified.

As details have emerged, however, so have questions about whether the mid-sized companies most in need of funds will be able to qualify and whether companies that do qualify might suffer under the strain of the new debt. That the Fed’s interventions disproportionately benefit large companies is not a reflection of its priorities. The Fed is creating these new facilities pursuant to its authority under Section 13 of the Federal Reserve Act to loan money to nonbanks in «unusual and exigent circumstances.» But the Fed must ensure each of its loans is adequately secured, limiting the credit risk it can take. This makes it far easier for the Fed to support large, creditworthy companies than smaller ones that pose greater risks.

Again, the Main Street Lending Facilities demonstrate just how difficult these issues can be, as efforts to rely on banks to screen the companies have revealed conflicts and compensation concerns. Shifting to focus on just the largest companies reveals yet another mismatch between what the Fed can do and what ought to be done. The most important near-term goal to promote economic health is keeping operations viable and employees employed. This is one of the reasons Congress tried to make retaining employees a requirement for new funding and why some European countries are providing generous incentives for companies to retain employees.

By contrast, the government has far less reason to want to protect a company’s current shareholders or creditors. Although it may seem counterintuitive, bankruptcy can be an effective way to protect a company’s operations and employees while still imposing appropriate losses on shareholders and creditors. Even without the additional burdens placed on the Fed in the CARES Act, the Fed is doing a lot to protect the long-term economic health of the country. From its commitment to unlimited quantitative easing to the range of facilities it has instituted to support short-term markets and provide liquidity to banks and primary dealers, it is working hard to prevent the COVID-19 crisis from triggering the type of market dysfunction that could exacerbate the pain.

As reflected in the fact that the stock market is booming while unemployment lines are swelling, the aggregate effect of funneling so much support through the Fed is that too much money is going to big companies, and far too little is going to small and mid-sized companies. It has also resulted in too many benefits flowing to the shareholders and creditors of those large companies, and too few protections for the underlying businesses and employees. That the Fed can only extend loans, not grants, even when grants may be optimal, could also inhibit economic growth when the cloud of COVID-19 clears. The one important bright spot in the CARES Act is the PPP, a program designed to help small businesses and their employees which does not require the Fed’s involvement.

The support takes the form of a low-interest loan, but it gets converted into a grant if the recipient uses the funds to retain employees. Just over two weeks later, however, it has become clear that the country is facing a new normal and the economic effects of COVID-19 will reverberate for a long time. The answer is not just to throw more money at PPP. It means allowing shareholders and creditors to bear some of the risks that they have been compensated to shoulder.

And it means being less reliant on the Fed to get money where it ought to go.

4. Prevue Meetings + Incentives Difficulty With the CARES Act
By Andrea Doyle – Published on April 10, 2020

One of the provisions of the CARES Act is the Paycheck Protection Program or PPP that are forgivable loans to keep workers on the payroll. You can borrow up to your average total monthly payroll costs during the one year immediately before the loan multiplied by 2.5. To find a list of lending institutions that are participating, click here and for the application and details here. According to the National Federation of Independent Business, about 70% of small business owners tried to apply for the loan with varying degrees of success.

About 72% of those who tried to apply for a PPP loan were successful in submitting their application. However, some banks are pre-screening applicants before having them fill out the full application, so it is unclear how many have successfully applied or have just completed the first step in a longer process. Twenty-eight percent of small business owners were not successful in applying for a PPP loan. Of the 28% of small business owners who were not successful, most of them are waiting for their bank to start accepting PPP loans.

Nine percent of them are not able to find a participating bank, which is likely due to their own bank not participating. Five percent of owners trying to apply for the loan were told by their bank that it had hit their limit of accepting loans. «We’re trying to get the Payroll Protection loan, and thank goodness my banker knows us. «The bank’s most significant recommendation to all who apply is to make certain that the supporting documentation you submit along with your application fully ties in with the dollar amount of your loan.

The COVID-19 crisis is not yet resolved and the times are still very uncertain. Our intention is to give our community of small businesses relevant information about the situation and the measures that are being taken from the government. Far from generating political opinions, we hope that this article can be of great help so that everyone can face the crisis with clear and concrete data.


We wish you the best 
keep healthy and take care of yourselves
keep healthy and take care of yourselves

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