Small Business Loans in Response to a Global Pandemic is not Relief

This piece was co-written by Shanon Williams & Christian J. Hughes, two small business owners

COVID-19 has officially set in and the nation has been scrambling to establish various types of support from food to mental health and everything in between as we all hunker down and prepare to be in semi/full isolation for the foreseeable future. In Allegheny County, PA, where we are from, there has been massive outpouring of support efforts making sure that folks have what they need inclusive of food, water, household and hygiene products, etc. My favorite part has to be the social outlets created in the virtual. #ClubRona, created by local DJ’s and even some comedians, has been keeping us all entertained and feeling connected (tip your artists, if possible.)

Though in response to global crisis, we can’t deny how amazing it has been to see human beings finding ways to help and support each other. Fights for accessible spaces in professional and educational spaces that have gone on for generations suddenly reached resolution in days with use of adaptive technology amid social distancing. Beautiful advocacy efforts calling for accountability after it became clear that this was always possible and the only barrier being the will of the “powers that be” to value people. I must say, we handle global pandemics pretty well in a lot of ways.

It has not all been smooth sailing, however. We want to focus on one area of concern in particular that has yet found a solid solution. Businesses have been forced to shut down in the name of health and safety for all — small businesses being the most vulnerable in that sector. Owners are fraught with the anxiety of uncertainty and dried up resources. People across the board are struggling to find the resources to maintain household utilities, rent, mortgage, car notes, student loans, and whatever basic essential we may have and that is on top of business essentials for owners. There have been governmental orders to stop evictions and utility cut offs. Student loans are on hold for the moment. These are some of the measures to address the economic concerns, but it only scratches the surface of what is needed.

We are currently fighting a national crisis that has drawn nearly everything to a standstill — yes. However, it will pass. Unless something is done, many of us will be facing financial hardship due to prolonged loss of income. For that reason, some agencies have stepped up to offer resources to help manage the financial need for small businesses. This sounds great, at first glance, however, the devil is in the details. With exception to Facebook’s small business cash grant relief (unreleased), every resource offered to small businesses in this time of crisis are loans. It is always better to have some options than none at all — but let’s consider a few things before we begin to submit applications to the Small Business Association.

The first thing I would like for you to consider is the fact that there isn’t an end date to this crisis. In fact, the updates continue to estimate longer timelines for social distancing. There is no clear idea of when business owners can get back to work. If that is the case, how can any of these creditors ethically and objectively calculate loan repayment? Small business owners may very well find themselves with payments due well before we get back to relative normal without any sustainable income.

The second thing to consider is the after care plan — there isn’t one. When this passes, it won’t be business as usual on day one. What will it look like for us to get back to 100% and how is that journey factored into loan terms? Loans are often difficult to manage for small businesses in regular circumstances. This is a literal pandemic (for once I am not speaking in sarcasm or hyperbole.) What are the considerations for non-linear return to work many companies will face? Many small businesses rely on the disposable income of patrons. How much disposable income will any average citizen have in the thick of rebuilding society?

The third thing to be considered is the accessibility of said loans. We know the ideal candidate for a loan has a good enough credit score and an income history or financial records strong enough to convince a lender that they are worthy to receive and be trustworthy to repay a loan. However, this is the ideal candidate in IDEAL times. We have to take a closer look at the average small business owner or entrepreneur. There are a percentage who started their businesses traditionally, sensibly even — saved a decent nest egg while working full-time, then left their places of employment to strike out on their own. This class of entrepreneur may be an ideal candidate as they have had the opportunity to build their cash reserve to make safe decisions within the risk that is entrepreneurship.

Then there is the dichotomy of entrepreneurs who were forced into entrepreneurship via job loss or other extenuating circumstances. Their businesses became solutions to flight or fight financial situations. Let us not forget to add student loans to this equation if they have them! This person has had to fight to be financially sound and has had to make tough calls to remain in business and to sustain a livelihood. This class of entrepreneur is no different than the aforementioned class of entrepreneurs, at least in the realm of starting, operating, and sustaining a business.

Should traditional lending requirements be upheld during a non-traditional economic occurrence? This is what we mean when we dig into accessibility. How often does a global health pandemic impact small businesses and what are the provisions for this? If I do not have a 670+ credit score at the strike of COVID-19, or a credit worthy cosigner handy, what are my options? Any entrepreneur that is daring enough to gamble on receiving a loan as “crisis relief” in these uncertain economic times is only doing so to replace a projected amount of income loss, so in “peace time,” they would not be soliciting said loan. In “peace time,” their business could be their way towards financial freedom — credit repair, consistent health insurance, paying personal bills on time. Now all of that has been temporarily placed on hold for them, and because of traditional loan requirements being upheld during a non-traditional economic crisis, the hole may be getting deeper for them. Essentially, only the people who “had their stuff together” pre-pandemic can readily receive relief during the pandemic. That leaves the most vulnerable of businesses and businesses owners to potentially face permanent shut down. That is not equitable crisis relief.

Finally, we should all consider the impact of not being able to repay the loan as planned. With uncertainty of a return and lack of an after care plan, small businesses face the risk of defaulting on these “relief” loans, which could put them in perhaps worse circumstances than before, when all they were trying to do is stay afloat during a time of crisis. It would not be recommended to take out a loan in financial strife with zero plan under regular circumstances. Taking out loans that, for some, would be doubling and tripling on existing loans, because we’re collectively in crisis with no clear end or plan in sight is unethical, to say the least.

Like every other piece of this society, small businesses need support. The American thing to do — the human thing to do for those who have the means (which is to say the agencies, institutions, and government) would be to supply that support without strings attached. Taking this time as an opportunity to sell debt is not support, it’s capitalism.

Image of bank note with “loan” written all over it


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