Saturday , November 28 2020
Companies Funds are Running Out, Layoff is Coming

Companies Funds are Running Out, Layoff is Coming

Companies Funds are Running Out, Layoff is Coming

As the U.S. outbreak rebounds sharply, both parties in Congress have been at loggerheads over a new round of economic aid. Without the plan, the troubled parties will not be able to get help, in addition to large numbers of unemployed people immediately facing the loss of subsidies, enterprises also looked at the brink of a cliff – that is, on August 8th, the last round of business-oriented rescue program will expire, many small businesses are facing the depletion of funds.

In addition, support for the U.S. airline industry expires at the end of September, and some companies may be forced to start layoff workers. In a tough situation, the U.S. is poised to see a new wave of layoffs if Congress doesn’t come up with new bailouts and companies can’t get new funding.

 

Eighty percent of small businesses are running out of money

As part of the “Care Act” promulgated in March, the salary protection plan previously passed by the US Congress aims to help small businesses survive the epidemic. The plan stipulates that companies with fewer than 500 employees can apply to banks and obtain loans after approval by the Small Business Administration. The total funding of the plan was US$349 billion. After quickly exhausted the funds, Congress added US$310 billion to the plan.

Small-Business Loans Saved as Many as 3.2 Million U.S. Jobs
Small-Business Loans Saved as Many as 3.2 Million U.S. Jobs

 

The Salary Protection Program has so far provided more than US$600 billion in loans to small business owners. If the lender uses most of the funds to pay employees’ salaries, it may be exempted from repayment. The deadline for applying for loans under this program is August 8, after which companies will not be able to apply. According to a Goldman Sachs survey, only 16% of US small businesses currently believe that they can continue to pay their employees after the plan ends, and 84% of the surveyed companies clearly stated that their funds will be consumed in the first week of August exhausted. As Congress has not yet reached an agreement on whether and how to extend this plan, the fate of many small businesses and their employees is therefore up in the air.

 

Companies facing a run-up to their finances may force to layoff workers as the program nears its expiration

Economists, including David Autor, MIT Ford Professor of Economics, pointed out in a research report released on July 22 that, as the core economic policy of the United States to respond to the epidemic, the salary protection program has increased the number of employees by 2%~ 4.5%. Studies have shown that direct loans to companies can help alleviate employment losses during the epidemic and may have helped save 1.4 million to 3.2 million jobs. Now that the plan is about to expire, companies facing capital exhaustion may force to layoff employees.

David Autor
David Autor

 

Negative effects of the salary protection plan

Although small businesses used loans to avoid large-scale layoffs during the epidemic, business owners also paid a considerable price. Due to the rush of the rescue plan, many rules are still changing after the loan is issued, making it difficult for companies to adapt.

For example, the plan originally stipulated that the lender must use more than 75% of the funds for salary payment within 8 weeks of the first loan issuance, otherwise the loan amount cannot be exempted. Since then, the rules have changed, 8 weeks have been extended to 24 weeks, and only 60% of the funds are required for salary payments.

The former chief economist of the U.S. Securities and Exchange Commission, Chester Spicer, said that these regulations are too rigid and cause “tensions between companies and employees.”

According to the US Consumer News and Business Channel (CNBC), many catering companies have directly felt the negative impact of the salary protection program. Many business owners basically spend their money on employees, but from the perspective of business operations, loans are not helpful to business.

For example, Robert Miller, an owner of three restaurants in the Pittsburgh area, said that after he implemented the rule that the loan should be used up within 8 weeks until the last week, the government only notified that 8 weeks had been extended to 24 weeks, but he runs out of money. “I ran out of loans a few weeks ago, but my turnover was more than half that of last year.” Miller believes that such operations are meaningless, and I believe there are millions of small business owners facing the same dilemma as him.

 

Airlines warn employees of up to 25,000 job cuts

While many small companies are struggling on the verge of bankruptcy, many large companies are also facing the dilemma of exhaustion of funds. Among them, the US$25 billion financial support plan provided by the “Care Act” to the US aviation industry will expire at the end of September. This is another “financial cliff” event that may have serious consequences.

Airlines warn employees of up to 25,000 job cuts
Airlines warn employees of up to 25,000 job cuts

Analysis believes that during the outbreak of the epidemic, a large number of airlines were canceled. This financial support is essential to pay the aviation industry’s salary and avoid layoffs across airlines. Regarding the prospects after the plan expires, many airlines have given their employees a “vaccination shot” in advance, asking them to prepare for possible layoffs after October. For example, United Airlines stated that it may lay off 36,000 front-line employees after October.

Many airline executives warned that it may take two years for the US aviation industry to return to the level of 2019. If they fail to extend the funding support plan, it may force them to lay off employees in the fall. “Although layoffs are still our last choice, in this very harsh environment, obviously this possibility cannot be ruled out.” Southwest Airlines CEO Gary Kelly said.

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