LOOKING AHEAD
THE UNINTENDED CONSEQUENCES OF PPP AND ERC : A Change Of Mind-Set
BY ANDY BAILEY
When the COVID-19 pandemic swept the globe , businesses were left reeling . In an effort to protect the health of themselves and their loved ones , people stopped going out to restaurants , buying movie tickets , and attending events . While it was hard to immediately “ pause ” our daily activities , it quickly became clear that an even bigger threat was looming : businesses weren ’ t going to be able to pay their employees if they weren ’ t bringing in any money .
Panic ensued . Layoffs happened . Business owners didn ’ t know what to do , so the government stepped in .
In the United States , businesses were offered many different resources to make it through this unprecedented time . The Employee Retention Credit ( ERC ) was crafted , giving businesses access to a potential tax credit , but it didn ’ t stop there . The Paycheck Protection Program ( PPP ) was a forgivable loan program that granted businesses funds to pay their employees .
Canada and many other countries formed similar versions of these bills to offer relief to businesses , keep people employed , and save the economy . On paper , all those things are great .
The intent was good and true . But , three years later , the unintended consequences of these programs are rearing their ugly heads .
As a business coach , I support businesses across the Americas with a wide range of challenges , helping them overcome whatever obstacles they face . Recently , the evidence has been clear : these programs may have done more harm than good .
To move forward , we first must examine what went wrong .
UNINTENDED CONSEQUENCES
Businesses got free money , so everything should be better now than it was before , right ? Wrong . We are facing some of the highest rates of business bankruptcies in 25 years and the lowest rates of employee satisfaction that we have seen in decades . These programs impacted the fundamental ability of businesses to survive , but there are a lot of layers to understand .
WEAKENED BUSINESS DECISIONS
When businesses are challenged , internal leaders have two options : get scrappy and find a solution or fail . Because of the $ 800 billion safety net given to businesses in the United States alone , business leaders didn ’ t have to make the tough but necessary decisions during that time . Think about it in a personal sense : if you have a lot of cash coming in , you ’ ll probably keep your Netflix subscription , but if you know you have to tighten your belt to survive , you ’ ll make the tough decision to shut it off .
Businesses needed to get scrappier . They needed to get out of unfavorable supplier contracts , restrict spending , and focus on growing business opportunities . Instead , things stayed the same , the loan money was spent , and lazy business practices compounded , adding to the situation we see now .
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