Small Business Loans May Help, But More Assistance is Needed for Child Care Providers

More help from the federal government is needed to ensure the survival of providers in the long-term
Blog Post
April 13, 2020

As record numbers of Americans file for unemployment benefits in the wake of the coronavirus pandemic, Congress is scrambling to provide the financial relief necessary to keep industries afloat. Since the vast majority of the country’s companies are small businesses and half of small businesses only have enough cash on hand to cover about two weeks of expenses, it makes sense that Congress prioritized aid for small businesses when it recently passed the nearly $2 trillion economic rescue bill known as the CARES Act.

An important component of the CARES Act is a $349 billion program, known as the Paycheck Protection Program, that offers forgivable loans of up to $10 million to companies, including child care providers, with fewer than 500 employees. As child care providers face closures across the nation and an uncertain future, these loans are one method they can use to temporarily stay afloat during a time of unprecedented economic upheaval.

Here’s how the Paycheck Protection Program works: small businesses can borrow 2.5 times their average monthly payroll expenses up to a maximum amount of $10 million. This money can then be used to pay for eight weeks’ worth of payroll expenses as well as mortgage/rent payments and utilities. If all the requirements of the loan are met then the loan converts into a grant and is forgiven without the need to pay interest. Child care providers are encouraged to apply as soon as possible through their local bank or lender since the loans will be awarded on a first-come, first-served basis.

Despite a streamlined application process designed to expedite the process of getting money to businesses that apply for the loans, the rollout of the Paycheck Protection Program has been a rocky one. While an estimated 660,00 loan requests have been processed in the first week, banks have been overwhelmed by the influx of loan applications and some have imposed requirements that are making it difficult for small business owners to successfully submit a loan application. The heavy demand for the small business loans have led many to speculate that the program’s $349 billion will soon be depleted, leading several members of Congress to seek an additional $250 billion for the program.

To assist child care providers in applying for the loan program, several organizations, including the First Five Years Fund and the Center for Law and Social Policy (CLASP) have recently released resources that explain exactly how providers can take advantage of the program. Since child care providers operate on slim margins and earn meager profits even in normal economic times, it’s imperative that these businesses have immediate access to capital to ensure they are able to stay afloat during the pandemic and re-open once things start to return to normal.

While immediate access to forgivable loans will be helpful for child care providers in the short-term, much more help from the federal government is needed to ensure the survival of providers in the long-term. The loans only cover about two months of operating expenses and it’s entirely possible the economic fallout will persist for a much longer period of time.

In a new letter to Congress, a dozen national child care organizations are calling for additional federal relief for child care providers. Specifically, these organizations are asking for additional funding for the Paycheck Protection Program, access to loans or grants for mid-to-large child care providers, and more money for the Child Care Development Block Grant (CCDBG) to help provide care for essential workers and maintain the sanitation of child care facilities. While CCDBG received $3.5 billion under the CARES Act, many advocates estimate that up to $50 billion will be needed to fully support providers who are currently closed as well as providers doing the hazardous work of providing care to children of essential workers.

While the federal government considers providing additional funding to support child care providers and educators, states can also play an important role in ensuring the long-term survival of the child care industry. States and local governments received $150 billion in federal funding under the CARES Act to cover coronavirus-related expenses and more money might be on the way soon. Vermont has taken bold action and announced they will use a portion of the estimated $2 billion they will receive from the federal government to support the state’s child care providers by covering the tuition they have lost due to being forced to close their doors. To receive the state funds providers must continue to pay all their staff at full salary levels. Providers that receive subsidies will receive payments based on children scheduled to attend and eligible for subsidies rather than actual attendance, which has been much lower recently for programs that have remained open.

We still have yet to understand the true financial impact the pandemic will have on child care providers and the early education workforce. What’s clear is that additional funding measures will be necessary in the short and long-term to ensure that enough providers are able to provide quality care and learning once children return to their classrooms.

*Update: On 4/24/20, President Trump signed into law a bill that puts an additional $310 billion into the Paycheck Protection Program.

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