The US Government passed legislation on 27 March 2020 under the Coronavirus Aid, Relief and Economic Security (CARES) Act, which is the largest relief bill in US history and will allocate US$2.2 trillion in support to individuals and businesses affected by the COVID-19 pandemic and economic downturn.
Layoffs
The primary highlight of the act dedicated to revitalising the economy is the Paycheck Protection Program (PPP). The PPP allocates US$350 billion to small businesses in order to prevent layoffs and business closures while workers have to stay home during the outbreak.
Companies with 500 employees or fewer that maintain their payroll during the coronavirus pandemic can receive up to eight weeks of cash-flow assistance. The loan proceeds can be used to cover payroll costs, mortgage interest, and rent and utility costs over the eight-week period that the loan is made.
Payroll
This aims to ensure that American small businesses can keep employees on the payroll and compensation levels are maintained throughout the crisis.
If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities are forgiven. While payroll is capped at US$100,000 for each employee, this is a fair and reasonable amount to ensure mid-level employees and mid-level businesses survive.
The application process is made very simple, by allowing businesses to apply through any federally insured depository institution. All small businesses under 500 employees can apply, and the PPP loan money will be dispersed within 48 hours, ensuring small businesses can maintain liquidity during the crisis.
Cash is king
What small businesses need most in this crisis is cash flow. Cash is king in any crisis and ensures that expenses can be paid and, most importantly, that employees can be paid.
The most critical part is that the PPP loans are deferred for six months, interest is 1% fixed rate, and the loans may be forgiven if, by 30 June 2020, the business restores full-time employment and salary levels to any changes made between the periods 15 February 2020 and 26 April 2020.
Collateral
No collateral is required for the PPP loan, and no personal guarantee is required by the small business owner. The PPP loans will ensure that American businesses are poised to make a comeback when the pandemic ends and businesses are reopened.
The US economy is clearly in recession territory, but the CARES Act is likely to ensure that a brief recession does not turn into a depression.
Threat of arrest
Juxtaposed with this response, the Irish situation is clearly more concerning, due to the lack of strong Government aid or assistance to small businesses during the Government-ordered shutdown.
We are honestly shocked at the low level of assistance the Irish Government has offered to small businesses after taking the draconian step of closing down all business, under threat of arrest.
Under the Temporary COVID-19 Wage Subsidy Scheme, up until 16 April 2020, the Revenue will refund up to 70% of the employee’s weekly net pay, but only to a maximum of €410 per employee for workers earning under €38,000.
The scheme will only contribute up to €350 for employees earning between €38,000 and €76,000, while employees earning over €76,000 are not eligible at all!
Amended
The Wage Subsidy Scheme was amended on 15 April 2020 to provide assistance to those employees whose average net weekly pay exceeded €960 and did not qualify under the previous scheme rules. This amendment to the scheme is a move in the right direction but is still too little and too late.
Moreover, businesses must be able to show that they have lost at least 25% of their turnover due to the COVID-19 pandemic and otherwise unable to pay normal wages and outgoings.
Unlike the US recovery plan, business owners are not included unless they cease trading. Basically, the business must admit to being insolvent to get the aid and, moreover, Revenue will publicly post a list of every company availing of the scheme, which stands to hurt the long-term reputation and future dealings of businesses.
Devastating impact
At the time of writing, 40,000 Irish businesses had availed themselves of the aid. While this wage scheme may be helpful to lower-wage employers, it will be devastating to mid to higher-level wage employers.
While the US is poised for a rapid comeback, we fear that many Irish mid-level businesses – including law firms – will not make it through the crisis, and will lay off thousands of employees or (worse yet) become insolvent and close their doors for good. There is a major risk that Ireland is slipping into a long-lasting recession again.
Rent and utilities
What Ireland needs is similar to what the United States has passed under the CARES Act. Irish small business owners need cash liquidity to pay business expenses, such as payroll, rent and utilities.
Many Irish businesses have seen a drop-off of more than 70% of turnover. Some businesses in the travel, hospitality and entertainment industries are even worse off, as their revenue has virtually dried up.
Another Great Recession?
Ireland was booming before the COVID-19 pandemic hit. It is critical that the Government provides more financial aid to the small businesses that have been decimated by the shutdown.
If the Government fails to act, the Irish economy is headed to-wards another recession/depression that will be worse than the 2008 ‘Great Recession’.
This does not have to happen. What Irish small businesses need – and need now – is additional loans made by the Government that can be forgiven if certain criteria are met, such as rehiring or keeping employees on the payroll.
This will ensure that businesses are able to remain solvent during the shutdown and are poised to roar back to life once the economy reopens.
Confidence
This type of lending will also instil confidence in the small business community that they will survive this crisis, and encourage them to keep spending and paying expenses.
This is critical to the Irish economy as a whole, because the more apprehensive people are about an uncertain economic future, the less likely they are to spend – and that has a continual spillover effect on the entire economy.
The decisions that the Government makes now will have long-ranging effects for the prosperity of small businesses, and for Ireland.