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Should Congress Authorize More Small Business Relief? Yes and No.

There are rumors and whispers in some corners of Washington about the possibility of another round of federal assistance for small businesses. It’s unclear how likely this is to materialize. It is clear, however, that the idea is in the air and being promoted by some on and off Capitol Hill.

The Build Back Better (BBB) Act includes $5 billion in additional spending for small business support. While not an immediate form of assistance in the same vein as the Paycheck Protection Program (PPP), some BBB provisions would inject new funding to support certain types of small businesses over a period of several years. There is speculation that Congress might authorize further targeted relief, along the lines of the Restaurant Revitalization Fund or Shuttered Venues Operators Grant.

Here, we briefly discuss some of the reasons and supporting arguments for whether Congress should, or should not, allocate more money now for small business relief.

YES: Small Businesses Need More Help

Things are getting harder, not better, for small businesses—and it’s possible that the BBB Act won’t become law.

The October Small Business Economic Trends report from the National Federation of Independent Business (NFIB) found a quickening slide in small business optimism. On balance, a net negative 37% of small business owners expected better business conditions in the next six months.

Why? One simple reason: inflation!

In the latest Small Business Pulse Survey reading from the Census Bureau, earlier this month, three-quarters of small businesses said they were facing “large” or “moderate” price increases for goods and services. Rising costs are driven by supply chain complications. Forty-four percent said they were experiencing domestic supplier delays—compared to just 29% in August 2020. Because of these challenges, 36% of small businesses in the Pulse Survey still don’t expect full recovery for at least another six months.

NO: Small Business Recovery is Underway

Have you looked at Peloton’s stock lately? At the time of this writing, it’s down over 70% since the beginning of this year. Sales growth is down, its revenue forecast dark. One big reason is that more Americans have been returning, in-person, to the gym—and many fitness centers are small businesses that struggled mightily during the worst of the pandemic.

Americans have also been eating out at restaurants more frequently. And going to the movies. And going to axe-throwing bars. And pretty much any other leisure activity you can name. The “social distancing” spending tracked by JPMorgan Chase shows steadily rising card present expenditures on retail, lodging, restaurants, parks, theaters, and other recreational services. That means people paying for things in person, at the box office or their table. By late autumn, in fact, such spending was 10% above its pre-pandemic level.

The biggest problem for small businesses right now is the very tight labor market: namely, finding qualified workers for the jobs that employers want and need to fill. In both the NFIB report and a recent “State of the Workforce” release from MetLife and the U.S. Chamber of Commerce, nearly half of small businesses report difficulty filling open jobs. In the Pulse survey from Census, identifying and hiring new employees was cited as the biggest future need—and it’s been the top need since August.

Want to help small businesses? Then figure out how to help them identify, recruit, and hire the employees they need. Figure out how to help them be more competitive with larger companies that are scooping up workers left and right with signing bonuses. This could mean supporting the ability of small businesses to offer benefits such as paid leave, child care, or retirement plans. This could mean enhancing labor market competition by limiting the power of incumbents to reduce employee mobility. This could also mean investments to improve the supply of qualified workers.

Lastly, there’s the compelling fact that new business formation is at an all-time high. Retail, especially online, has been the sector with the largest volume. Why should the federal government send billions more dollars in public support to small businesses when millions of Americans see huge entrepreneurial opportunity today and the unemployment rate is near a record low at 4.2%?

Winter is coming. General uncertainty for small businesses everywhere is also growing, with COVID-19 infection rates on the rise in some areas and the Omicron variant stalking the country. Cost pressures only worsen the uncertainty, especially for those types of businesses—restaurants, live entertainment venues—that depend on people feeling safe in close physical proximity to others.

There is also the matter of uneven impact across business types and the demographics of business ownership. Child care providers, most of which are small businesses, have been hit extremely hard and reopening has been difficult. The struggles have been exacerbated by staffing shortages and the effects have rippled across the economy.

Businesses owned by people of color bore a disproportionate burden of the negative economic hit from COVID-19. Prior to the pandemic, these businesses were less likely to have relationships with traditional banks and faced significant gaps in accessing capital. Initial rounds of PPP missed many of them. Their recovery is likely to be rockier and slower than for other business owners.

If Congress doesn’t act now to address these challenges, they’ll only get worse.

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