PPP - 8 Weeks later the Bankruptcy Avalanche comes Crushing Down

When Good Intentions create Disaster

The economy has been hit by the consequences of the COVID19 pandemic and we are currently facing 36 million unemployed and rising. Most people have heard that about 45% of the total US economy is made up of small businesses.

Almost 60 million people are employed by small businesses and that does not count people who are not employees — i.e. gig workers, 1099 workers, sole proprietors, etc.

Long story short, the impact of small business on the economy and the general workforce is huge.

What blew me away a few days ago was the announcement by the Federal Reserve chairmen that 40% of people making $40,000.00 a year or less are now unemployed. Guess where most of them work? Yes, in small businesses. Don’t forget our food is harvested by seasonal workers that our government does not like and does not support. Some people say that’s 11 million people and they are not participating and working when the country is shut down.

Few politicians want to acknowledge that, they are far far removed from normal people working hard every day and earning a living at or below the US average of about $60,000.00 per year. They, both democratic millionaires in the US Senate and Congress, as well as Republican Millionaires in both houses, decided that it would be a good appearance to give small businesses some help in the current economic crisis.

To make it feel even better they called the law they passed the “CARES Act”. The idea was to protect employment and help out for short term business pain. So, they included two programs in the CARES Act.

1. The PPP or Payroll Protection Program. It gives a small business owner a loan that will be forgiven if he or she keeps or hires back workers that were on the payroll before the crisis started in March 2020.
2. The EIDL or Economic Emergency Disaster Loan Grant. It said that each small business or gig worker/sole proprietor could submit a request to the Small Business Administration (SBA) and get $10,000.00 without a lot of paperwork or proof of damages from the crisis. This is a grant, meaning the small business does not need to pay the money back and can use it to keep running operations, pay rent, mortgages, equipment, lease fees, and whatever else is needed to maintain operability for the day the economy opens again.

Sounds good — don’t you think?

Yes, it does, but it was obviously created by people who have very few ideas about how a small business works, what the term “flexibility” means. On top of all that, they refused to put strong oversight to make sure their intentions are actually executed by the SBA.

How did it go so far and why is there an avalanche of bankruptcies coming to crush the economy?

Well, the SBA unilaterally decided that the need for the EIDL grant was not, as written in the law, determined by the small business owner but by them. The law said a small business owner could ask for a $10,000.00 grant and would receive it within 72 hours after properly submitting an application.

I did exactly that.

Without any oversight or any rhyme or reason, the SBA declared that each business that could not prove that it has more than 1 employee or no employees at all ( meaning all gig workers, sole proprietors or individual small business owners who only had 1 employee) would only receive $1,000.00 instead of the requested $10,000.00.

You probably think that the supposedly well-intentioned politicians would jump to the side of the small business community and make sure the SBA follows the law! You would be very mistaken and wrong. Nobody did anything. The program has come and gone and the really small businesses did get $1,000.00 regardless of what they requested. Can you imagine how long a small company can keep running at $1,000.00? I can tell you not long — not even a month.

OK, but there is still the PPP. That is a huge program, right. Yes, and 45% of the hundreds of billions of dollars went to companies that requested $1 million or more. By the strict definition if you have a payroll of $1 Million in 2 months you could still be considered a small business, but it’s not the small shop or company on Main street.

So here is the deal that creates the avalanche. The PPP money has to be used at 75% exclusively for payroll to employees. If you hire back fewer employees than you had in February or March of 2020 you get punished and the loan will not be fully forgiven. The remaining 25% can be used for rent, utilities, etc.

The biggest catch that creates the avalanche? From the day a small business owner gets that PPP loan you have 8 weeks to spend the money.

Think about that. You have a restaurant or a consulting company like I do and since March 14th we have been in lockdown. Now we are slowly starting to open again but in no way will we be back to anything remotely resembling the situation we experienced in January or February 2020.

What’s the consequence? In June, when the PPP window of 8 weeks has run out for pretty much all recipients, there is no choice but to fire people you kept for 8 weeks and in many cases, close shop, declare bankruptcy. Many owners will look at the remains of what they build in years and sometimes decades.

That’s where the avalanche is coming from. Just when the economy is supposed to restart, most small businesses will run out of PPP money and have no choice but to fire their employees and go out of business. That’s what politicians call “taking care of the small guys”.

That leaves the question of what individuals and small businesses could have done. For many years I have seen that we don’t have any real protections in the small business community, gig workers, sole proprietors. We can’t get health care plans that are affordable. We don’t have the same access to retirement plans. We have no access to cheap credit like the big guys do.

Cindy Cornett Seigle — Flickr

It is pretty obvious that the way to remain successful as an individual with a family or a small business is to create a way that is independent of government support.

That means money needs to come in even in the worst of crisis and value needs to be in place and remain in place even in the worst crisis.

That can only occur with assets. Some people tried to cover their behinds by investing in stocks, mutual funds, and ETF’s. The problem with that is that the crisis is the trigger to massively reduce the value of these kinds of assets and everybody wants to sell, suppressing value.

There is a better way. I created the Ideal Wealth Grower system and am growing a community of like-minded people, many with an entrepreneurial background.

The system allows normal people with my help and mentorship to invest very reasonable amounts of money in the one fundamental asset we all need. Basic shelter. Owning nicely renovated single-family houses and developing a portfolio of assets that way is the best protection I have seen when bad times hit.

Residential real estate investors came through the great recession very well and had a huge advantage when many foreclosures were available to buy for cheap. Since then the market has grown but the opportunities are still out there.

No loud, in your face marketing. Just a steady, considerate approach to develop assets, equity, and most importantly, passive income. People will always have to live somewhere.

I am a big fan of creating win-win-win situations. The small business owner or saver wins by accumulating assets and equity and providing a great service to other people. The tenants win because they get to live in really nicely renovated houses for a fair rent. The taxpayers and society win because companies and individuals don’t have to wait for handouts, poorly designed bail-out plans, or ill-devised support programs that run out of money before they can have any serious effect.

It is my mission to help those who see the benefit of passive income learn how to reach their goal and create economic independence.

We can all learn and work together to overcome the current crisis.

I hope the avalanche will not destroy too much of our economy and leave behind opportunities to start in a new direction based on assets and passive income.

S.Rose — Pixaby.com