By @EricLevitz

Just business. Photo: David L. Ryan/The Boston Globe via Getty Images/2020 – The Boston Globe

When Congress passed a $349 billion bailout of American small businesses last week, the program appeared to suffer from three deficiencies.

First, the aid was already (at least) two weeks too late. The COVID-19 pandemic, and the social-distancing measures enacted to mitigate it, had already forced many small firms to cut staff by the time the Paycheck Protection Program made it to Donald Trump’s desk. The bailout’s belated passage made it imperative to get cash into business owners’ hands as quickly as possible. And the fact that firms would ostensibly have to go through the Small Business Administration (SBA) — an underfunded and notoriously lethargic bureaucracy — raised concerns that only exceptionally well-capitalized independent companies (or pseudo-small businesses like chain restaurants) would survive the gap between the program’s enactment and their receipt of funds.

Second, it was unclear whether the program would encourage firms to rehire staff they had previously cut. One of the policy’s clear virtues was that (as its name suggests) it incentivizes firms to retain employees: Although structured as a loan program, so long as businesses do not lay off any staff or impose any pay cuts, the loans will be forgiven after two months (making them, in practice, conditional grants). But theoretically, a company might be able to subvert the program’s intention by firing staff before applying for a loan.

Third, the price tag looked orders of magnitude too low to provide relief to all eligible firms.

But in guidance released Tuesday, the SBA and Treasury Department largely resolved the first two concerns. And in an interview with CNBC Wednesday morning, Treasury Secretary Steve Mnuchin suggested there is already bipartisan consensus in Congress to lift the $349 billion cap on the program as soon as it is exceeded.

Who qualifies for a small-business loan? What do I get if I qualify?

First, it’s worth reviewing the (newly confirmed) nuts and bolts of the program: If you are a company, nonprofit, veterans organization, or tribal concern with 500 or fewer employees — or else, a self-employed individual or independent contractor — the government will provide you with a loan equivalent to eight weeks of your prior average payroll (or, for the self-employed, earnings), plus an additional 25 percent of that sum (unless that grand total adds up to more than $10 million, which is the cap for any individual firm). You do not need to make any payments on that loan for six months. And if you maintain your workforce, then the government will entirely forgive the portion of the loan spent on payroll, benefits, utilities, rent, mortgage payments, or other debts. In other words, it will forgive more or less all of it. The policy isn’t actually intended as a loan program so much as a payroll-support policy akin to those adopted in Denmark and the United Kingdom. It’s structured as a loan program primarily because America’s private-banking infrastructure is more robust than its state capacity, and so having private banks issue government-guaranteed loans is a quicker way of getting money out the door.

How do I apply for the loan?

Which brings us to the first critical clarification in Tuesday’s guidance: Small businesses don’t need to work through the SBA or its affiliated lenders to secure loans, but, rather, can apply for them at most any “federally insured depository institution, federally insured credit union, and Farm Credit System institution.” In other words, an eligible business owner should be able to walk into just about any FDIC bank and secure enough capital to cover payroll for two months. This will ostensibly allow firms to get the money they need to survive posthaste.

Will this loan help workers who were already laid off?

The guidance also goes a way toward resolving concerns about already fired workers. The new rules (1) require businesses to spend 75 percent of their loans on payroll in order to qualify for forgiveness, and (2) clarify that firms that have already done layoffs can secure forgiveness by “quickly” rehiring laid-off workers. Taken together, this provides a powerful incentive for businesses to bring staff back on, since (essentially) any money you save by lowering your monthly payroll costs will just end up going to the government.

What are the limitations of this program?

The biggest flaw in the program — its inadequate $349 billion funding stream — remains unresolved. There is a risk that that pot of capital will be quickly exhausted, as firms that need the least help commandeer the lion’s share of the aid, thanks to the diligence of their lawyers and accountants. Mnuchin did tell CNBC Wednesday that he’d heard “this small business program is going to be so popular that we’re going to run out of our $350 billion,” and that “if that’s the case, I can assure you that will be top of the list for me to go back to Congress on. It has huge bipartisan support, and we want to protect small business.”

But the Senate is on vacation until April 20. If the program works as it should — and every eligible small business applies for forgivable loans — then the funding should be gone well before Mitch McConnell & Co. return tanned, rested, and ready. This is not a difficult problem to solve. And, in the long run, allowing mass business failures will cost our economy far more than picking up every small firm’s payroll tab for two months (or so even conservative economists will tell you). Congress should be prepared to replenish the program’s funding imminently, even if it has to establish remote voting in order to safely do so.

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