Ayanna Pressley and Kamala Harris have a plan to help truly small businesses. Here’s how it would work.

"The fabric of our cities will be lost."

Rep. Ayanna Pressley speaks on the floor of the House of Representatives last month in Washington, D.C. –House Television via AP

In the wake of the federal government’s beleaguered effort to help small businesses during the coronavirus outbreak, Rep. Ayanna Pressley is spearheading a proposal to help the country’s smallest businesses.

The Massachusetts congresswoman teamed up with California Sen. Kamala Harris, a fellow Democrat, to propose a $124.5 billion grant program Wednesday to keep “microbusinesses” afloat during the pandemic — with a particular focus on minority-owned companies.

“We must be intentional in directing aid to these small businesses that employ our neighbors, provide critical goods and services, and generate trillions of dollars in economic activity annually,” Pressley said in a statement.

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The proposal comes on the heels of the recent coronavirus relief package’s Paycheck Protection Program, which offers forgivable loans of up to $10 million to small businesses that keep paying their workers during the COVID-19 crisis.

However, that program has been plagued with problems.

The $350 billion fund was quickly depleted, requiring a $310 billion refill last month, after larger firms ate up a sizable chunk of the money. Lenders are warning that some businesses may get stuck with debt, due to complicated loan forgiveness rules. And as The Washington Post recently reported, advocates fear the lending program will not be enough for minority-owned mom-and-pops, which are both less likely to have a financial cushion and more likely to be in the industries most affected by the pandemic, such as services and retail.

The Saving Our Street (SOS) Act proposed by Pressley and Harris looks to address some of those issues.

First, it targets only truly small businesses; while the PPP generally only offers loans to companies with up to 500 employees, the SOS Act caps that number at nine for most businesses. The limit increases to 20 employees for companies based in low-income communities and that have half of their workers from the community.

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The bill also includes provisions to ensure the money only goes to businesses that need it. Like the PPP, funds cannot be used to pay salaries over $100,000 a year. However, businesses with more than $1 million in revenue would be prohibited from getting grants (nonprofits with up to $500,000 in revenue and less than 10 employees would also be eligible), as would publicly traded and venture-backed businesses. As part of the application process, businesses would have to provide financial statements demonstrating actually need, including a 20 percent month-over-month decline in revenue since Feb. 15, according to Vox, which first reported the bill.

Second, the SOS Act would offer direct grants, as opposed to loans.

Provided through a new “Microbusiness Assistance Fund,” the grants would be capped at $250,000 and require companies to at least maintain their employees’ prior health benefits. While recipients could still furlough employees, the grants could also be used for payroll, rent and mortgage, and utilities. Essential businesses that have continued to operate during the crisis could also use the money for protective gear and hazard pay for employees.

And lastly, the bill would earmark 75 percent of the overall funding for historically underrepresented businesses, including minority-owned and veteran-owned businesses. There would also be $400 million devoted to groups that provide assistance to those businesses.

The bill would require a report detailing the ethnicity, race, industry, geographical demographics, and sex of grant applicants.

“Our smallest neighborhood businesses are the backbones of our communities, but so far too many have been left out and left behind by federal relief efforts,” Pressley said in a statement. “Without deliberate action, this will widen the racial and gender wealth gap.”

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The SOS Act also came with endorsements from a coalition of small business and civil right groups, from the Main Street Alliance to the NAACP Legal Defense and Educational Fund.

Pressley and Harris have also previously called on President Donald Trump’s administration to provide racial data on PPP loans, given the longstanding disparities in access to credit. Even though minority-owned small businesses have recently grown faster than other small businesses, studies show that they have had a more difficult time getting small business loans, due to a variety of factors, including size, location, and credit history.

Pressley’s office noted that businesses with less than 10 employees generate nearly $3 trillion in revenue each year. Without targeted help, communities across the country could lose already vulnerable businesses, from bodegas to barbershops.

Jen Faigel, the executive director of CommonWealth Kitchen, said the Dorchester nonprofit’s network of food businesses had been “decimated” by closures due to COVID-19. Primarily owned by women, immigrants, and people of color, the more than 100 startups were already “severely undercapitalized and running on very slim margins before the pandemic,” Faigel said.

“They can’t afford to take on debt, and programs like PPP are not a solution for businesses that have no idea IF they will ever be able to re-open, let alone when,” she said in a statement. “They need grants, not loans. Without a bailout, these businesses, that are the heartbeat of every main street district in every community across the country, will close forever, and the fabric of our cities will be lost.”

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