The election has provided some clarity about what the future administration will look like. Unfortunately, we still have very few details regarding if/what/when the next stimulus package will be.
Many people are calling for additional stimulus. With Small Business confidence at an all-time low, it would be hard for Congress not to pass some additional aid.
I am going to look at what the options and timing are shaping up to be.
Broad Support for More Small Business Stimulus
The good news is, there is support from both Democrats and Republicans for additional support for small business owners. The Paycheck Protection Program (PPP) has been viewed as successful, despite some speed bumps.
Since August 1st, all of the proposals that have been negotiated have included a second round of “targeted” stimulus. Even the trimmed down proposals from the Republicans in the Senate have included a second round of PPP stimulus.
It should be noted, the HEROES Act that was proposed by Democrats and passed in the House did not include a second round of PPP funds. Some of that might have been a function of timing. The HEROES Act was passed in early June when many businesses were in the midst of still using their funds.
However, subsequent proposals from the Democratic-controlled House have included provisions for additional PPP funds.
Will You Qualify For More Stimulus?
So far, most proposals appear to mirror the PPP. Both sides of the aisle appear intent on making sure that these funds are dispersed based on need.
During the April round of PPP funding, there was no requirement to show a need for funds. As such, many businesses that were fairly unaffected by the pandemic were able to get funds. Through other loopholes, many much larger organizations were able to also secure funding. Congress recognizes these issues.
I would bet heavily on the establishment of need-based criteria. Such criteria will be heavily scrutinized, no matter what it is. It had been mentioned in early negotiations between the two parties that the criteria would be revenue based. Republicans even went as far as saying they favored businesses having to show a 50% drop in revenue to be eligible for funds.
There are several issues with setting revenue as the criteria. First, what about businesses that had a 49% decrease? Will they be left out due to making just a few thousand or hundred bucks then the next business? A business with that sort of decrease would still seem to be heavily affected. Second, over what periods are being compared? Most likely, it would be comparing 2019 to 2020. Would previous PPP funds be considered revenue?
And lastly, what accounting method are we going to use? This might seem silly, but there are many “tricks” that companies that are close to the threshold could use to make sure they qualify.
Criteria for revenue would seem to be troublesome. However, the real issue is that there is no good way to measure which businesses the pandemic has impacted. Any method put in place will have major flaws and loopholes and will most likely leave out people in need. Timing is critical, so there is no time for an appeals process to be put in place.
A few ideas have been floated for specific industries. For instance, trade groups associated with restaurants have specifically asked for stimulus. This again would have issues as the ramifications of the pandemic have been far-reaching.
Despite the issues noted above, there will most likely be criteria for businesses to qualify for more stimulus. What they are, we can only guess right now.
What will be the timing?
If this article had been written at the beginning of November, there would have been a few more options. However, as we sit here at the end of November, there are two windows to watch.
The first window would be the brief session starting November 30th. Both Donald Trump and President-elect Joe Biden have said they want Congress to cut a deal. However, there is still about a $1.7 trillion gap. While this might seem like a large gap (and it is), the White House has already signaled their willingness to increase to close to $1.8 trillion. The wildcard is still the Senate Republicans.
Let’s talk about the Senate Republicans for a moment. The Senate has a good chance of being controlled by the Republicans after the runoff election in Georgia in January. This means that any funding bill will need to pass the Republican-controlled Senate. Much of the negotiations going on so far has left out the Senate. The negotiations have been between the House Democrats and the White House.
The Senate twice passed smaller stimulus bills (both which included aid to small businesses) since August. However, they refused to vote on other acts passed by the House and have been somewhat vocal about the need for another large aid package. It would seem even if the House Democrats and the White House came to a deal, it may still face an uphill climb in the Senate. With Republicans maintaining control, this may not be changing anytime soon.
The need for funding of state and local governments appears to be a deal-breaker for both parties. The biggest “if” regarding another stimulus plan is how funding for state and local governments gets handled. If not additional stimulus is passed, this would be the reason why.
Back to timing…..would Senate Republicans shut down the government, weeks before Christmas, over Democrats insistence on including a Coronavirus aid package in the deal? Would Democrats? That is the question we may see.
If a deal to avert a government shutdown is reached without additional aid, the next window would be early February. Joe Biden and the House Democrats will have an aid plan ready to go shortly after taking office. However, negotiations with the Senate Republicans would still be a potential landmine.
The majority in the Senate would only be by 1-2 votes (if at all). This means that Democrats would only need to find 1-2 Republican Senators willing to pass an aid bill. It is not a sure bet, but chances are better than average.
Even if aid is approved, it will likely take 2-4 weeks to roll out. So, if you are looking for when you might get additional PPP funds, I would bet on either mid-January or early March.
What Can I Do to Prepare?
Many businesses will be prepared to move quickly. That means you should be too. The best thing you can do is make sure that your financial statements and payroll records are ready to go. That might mean closing your December 2020 books faster than usual.
If you are one that extends your tax return every year, this may be an indication that your records aren’t closed on a timely basis at year-end. That needs to change this year. Having accurate and timely 2020 records will be crucial.
It would be best if you also had a plan on how to use the funds. The rules for the previous PPP changed in June. By that time, it was too late for many businesses that received funds in mid-April. The most significant rule change was the timing of the covered period. Many businesses would have significantly benefited using the 24-week covered period instead of the eight weeks. This is just one of the many points that should be planned for.
Lastly, stay up to date. Remember challenges from the first go around and make sure you adjust. Keep listening to what politicians are saying (as painful as that may be) so that you are prepared for what comes next.
About Krieger Analytics
My name is Matt Krieger, and I am the founder of Krieger Analytics. We are a virtual CFO and bookkeeping services partner for small businesses and franchisors. Our goal is to completely outsource your accounting department from bookkeeping to virtual CFO services. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado. I know what running a business entails.
As a small business owner with a background in finance and strategy, I realized the benefits that a virtual CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO or bookkeeper. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), we are also involved in much more. We partner with clients by coaching, giving them clarity into their business, and creating growth strategies. Conversations are free, so don’t hesitate to reach out to me at [email protected].