2020 was a year decimated by the COVID-19 pandemic. The virus has created an unprecedented economic shutdown, with small business owners hit the hardest. However, some businesses were able to fare much better than others. We were able to collect data on business owners who use a PEO versus those who did not and found that PEOs provided positive business outcomes during the pandemic. (Please note that the pandemic and its effects are ongoing, therefore it is impossible to assess any final effects on small businesses or the economy.)
After the beginning months of the pandemic, we found that businesses who use a PEO were more successful than those that did not in terms of:
· Paycheck Protection (PPP) loans
o Percent Receiving PPP loans
o Percent receiving PPP loans earlier in the process
· Current Business Status (Open/Closed)
· Business Survival
Throughout the beginning stages of the pandemic, PEOs quickly provided their clients assistance with facilitating applications for the Paycheck Protection Program loans from the federal Small Business Administration (SBA).
In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced the PPP program to the public. The PPP program was designed to provide forgivable loans to help businesses keep their employees on payroll and cover other costs such as rent or materials. However, the quick rollout of the program was notably bumpy and confusing. On top of that, much of the verbiage in the program was vague and promoted confusion. In fact, a report by the Government Accountability Office (GAO) found multiple examples of confusing verbiage on fundamental aspects of the program like eligibility criteria, unclear interim rules issued on a rolling basis, and a lack of clarity about how PPP loan proceeds must be used in order to qualify for loan forgiveness.
The original PPP program was to allocate $350 billion to businesses across the country. Yet, all that money was used up between April 3 and April 16, 2020 with most of it going to larger businesses. An extension of the program added an additional $300 billion in funding. Applications for the second wave of funding reopened April 27 and closed August 8, 2020. The second wave was geared toward small businesses with the most PPP loans totaling under $350,0000.
PEOs worked tirelessly to guide clients through the PPP loan process, including providing the necessary documentation and employee related data. PEOs have continued to work with clients by ensuring that clients use the loan proceeds according to changing federal guidelines. Despite its complicated and confusing rollout, loans through the PPP program represents the lifeline that small business owners need. PEO clients were significantly more likely to receive PPP loans and to receive loans more quickly than comparable small businesses. PEOs reported an average of 65.9% of their clients received PPP loans. The nationwide average of small businesses that received PPP loans is 30.1% -- less than half that of PEO clients. This gives PEO clients an advantage to weather and survive the economic effects of the COVID-19 pandemic.
Only 28.9% of all small business PPP loans (loans less than $350,000) were received in the first round of funding. Even less small business owners were able to receive smaller loan sizes. Only 26.4% of all loans of $150,000 or less were received in the first round, meaning the vast majority of small business loans were received later after the second round of funding. However, among PEO clients about half (49.7%) of all loans were received in the first round and almost all (97.8%) successfully got their PPP loan after the second round. PEO clients were able to get their loans faster and in the full amount compared to other small businesses.
While securing PPP funds provided a short-term support to a business’s ability to survive, its long-term survival depends on the capacity to be open and serve its customers. While early in the pandemic most states and industries decided to shut down for safety precautions, recently states have reopened for business. Obviously, there are still variations across state lines but now most businesses can be open in some form.
Whether a business can be open or not reflects its ability to adjust to changing external circumstances. Among PEO clients, 1.3% were temporarily closed by the end of July 2020. This compares to a national rate of 14% of small businesses that were temporarily closed during the same period. Thus, regardless of industry, PEO clients were far more likely to be open than other small businesses.
In conclusion, it is clear that PEOs have a direct impact on their client’s success. Not only did PEOs help navigate their clients through the choppy waters of the pandemic, but they also gave them invaluable support to ensure they survive and continue to grow into the future.
Partnering with a PEO like CornerstonePEO may be in your best interest. CornerstonePEO covers everything from HR and employee benefits to payroll and workers comp. Our industry leading PEO services offer innovative, cost effective, easy to understand business solutions for companies of any size and industry. Contact us to learn more.