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  • Hannah Kaufman Joseph

One CARES Act Program that Worked: Debt Relief



A lot has been written about the MANY issues that have arisen with the CARES Act. You would have to be spending your quarantine in a drunken stupor (which is understandable) to have missed the widely negative coverage of the missteps involved in the roll out of the Payroll Protection Program and Economic Injury Disaster Loans authorized under the CARES Act.


The PPP was both underfunded and badly administered - one only has to look at the tragedy of massive companies like Ruth's Chris and Potbelly receiving millions of PPP loans while most Main Street small businesses were shut out entirely. I love steaks sizzling in butter as much as the next guy, but I don't know if I can ever go back to Ruth's Chris after their unconscionable use of the PPP that came at the direct expense of many small businesses just trying to hang on by their fingernails. By the way, last year, Ruth's Chris's reported a profit of $42,000,000 last year.


Small businesses owners across the country, including ours, have faced a maddening process to receive the crucial funding needed to simply remain a viable enterprise. Personally, we submitted at least ten PPP applications, spending an unreasonable number of hours chasing the relief that appeared just out of reach. Bear in mind we are lawyers that focus on representing small businesses and entrepreneurs - you can bet that our application and supporting documents were letter perfect. Nonetheless, we have yet to receive funding. In fact, among my entire network of clients, friends, colleagues, and social media "friends", I have yet to hear of a single business that has received funding. We may yet be one of the lucky ones, as we received an SBA number last week, just as it was announced that the program had run out of funding.


The EIDL loans have fared no better, which was entirely foreseeable considering they are being administered directly by the SBA, an organization that does not typically act as a direct lender, and which lacks the manpower, infrastructure, and even basic technology needed to put funds in the hands of borrowers. Remember the $10,000 "emergency" grant that small business owners were supposed to receive within three days to "tide over" companies while they wait for PPPs? That has been nothing more than a pipe dream.


But the news isn't all bad - one aspect of the CARES Act has worked flawlessly. The CARES Act created a "Debt Relief" program for small business owners holding certain types of SBA loans. Under the program, the SBA will pay six months of loan payments for the most common types of SBA loans. The best part - it happened AUTOMATICALLY. No application, no confusion over interim or final rules, just actual financial relief for small business owners.


The reason the Debt Relief program is both successful and remarkable is that it required zero bureaucracy. Our firm has a qualifying SBA microloan and we received notification almost immediately after the CARES Act became law that the next six months of our loan payments were being made by the US government. We didn't have to fill out an application or submit a single piece of paperwork. We didn't even have to KNOW that our loan qualified for Debt Relief. Instead, our business received instant relief that translates to actual dollars and cents that we can use to pay our employees rather than our lender.


Unlike the PPP, the Debt Relief program is guaranteed to benefit only genuine small businesses, because only true small businesses can obtain SBA loans. Thus, companies like Potbelly couldn't exploit this benefit, because they would not have qualified for a SBA loan. Moreover, because the Debt Relief program requires virtually zero red tape, there is no risk that technology issues, overwhelming borrower interest, or worker shortages will delay small business owners from receiving the financial benefits they so desperately need. However, SBA loans are historically difficult to obtain, and the vast majority of small businesses cannot benefit from the SBA Debt Relief program because they don't have an existing SBA loan.


As our lawmakers craft the next round of legislation for small business relief, I hope they consider the one program that worked well under the CARES Act. It is obvious that further financial relief programs need to focus on simplifying the application process, creating a better system for disbursing funds quickly and equitably, and implementing protections that ensure actual small businesses receive the funding.

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