The COVID-19 public health crisis is giving rise to an unprecedented economic crisis. Economic activity across the nation has slowed considerably, and many small businesses—which were operating successfully only one month ago—are now struggling to survive. As their bills pile up but no revenue comes in, some businesses will run out of cash and be forced to shut down permanently. Business closures on a vast scale would likely inhibit a recovery for years after the current crisis subsides. The economy will rebound more quickly after the crisis if these small businesses keep their staff in place and are able to resume operations as soon as restrictions are lifted.

One way to assist small businesses during a cash crunch is to establish an emergency loan program. The federal Small Business Administration (SBA) offers a disaster loan product for this purpose, but the process takes 60-90 days (possibly longer in a time of heavy demand) for the SBA loan to be issued by a bank. Some businesses would be forced to lay off workers in the interim, and many businesses still wouldn’t have enough cash to remain solvent while waiting for the SBA loan.

This is where state and local governments come in; they can offer emergency loans during the intervening period. As explained in an earlier blog post, North Carolina local governments possess statutory and constitutional authority to offer small business loans and could fill the gap. However, the need is great and local governments may not have enough trained staff to run a loan program at the scale required. Fortunately, North Carolina is home to an array of community-minded financial institutions who know how to administer and manage small business loans. A number of those financial institutions have collaborated on a statewide emergency loan program. It is possible for local governments to contract with these and other third-party financial institutions for administration of a local government emergency loan program. Read More…