Thursday, May 19 2022

The state will immediately launch an interest-free loan program of up to $ 75,000 for small businesses affected by the coronavirus crisis, said David Lehman, chief economy officer under Governor Ned Lamont, on Wednesday.

The program is small by the standards of the storm sweeping trade across the state, nation, and world. In the first round, it will total $ 20 to $ 25 million, enough to fund around 600 companies with a rapid injection of cash in the order of $ 40,000 each.

In a state economy worth $ 280 billion a year, with around 90,000 businesses – many of which are sole proprietorships – this isn’t supposed to move the mountain on its own. On the contrary, Lehman said, it’s a quick bridge until small businesses can borrow through much larger federal programs, or through banks and other private lenders – who have huge new injections totaling trillions of dollars.

“The state will not be the small commercial lender for the whole state. We’re trying to do something meaningful and flexible and we’re trying to lead by example, ”said Lehman. “The banking system is the source of money. “

Lehman said his Department of Economic and Community Development survey shows that 90% of businesses in Connecticut have suffered a negative impact on their revenues, but 50% are still operating at or near full capacity, with many supply chains, in the manufacturing sector, for example, still intact. .

the Connecticut Recovery Bridge Loan Program, with 18-month loans, is roughly the same dollar size as a similar plan launched by Massachusetts, which has a much larger economy. Previously, Lamont and Lehman announced a loan forbearance program, under which 800 existing borrowers in the Small Business Express program received a three-month deferral of payments – a benefit worth a total of about $ 5 million.

Borrowers will need to take a credit score test and personally sign for the loans.

The new state incentives do not need legislative approval as they are already authorized under the Small Business Express program and funded by past loan repayments. Lehman briefed legislative leaders on Tuesday and said he was following their guidelines informally.

The massive federal stimulus and bailout already includes $ 50 billion in loans backed by the Small Business Administration, although they are slow to reach businesses. The new plan being approved and President Donald Trump’s signing is expected to include $ 377 billion in more aid to small businesses, through bank loans – the so-called Rubio plan – much of which will drop from outright grant loans if companies keep their jobs. for a relatively short period of two months.

Together, assuming Connecticut wins 1% of federal programs, these small business bailouts would pour $ 4 billion into the state’s economy in direct aid alone. This comes in addition to even larger sums for targeted bailouts of large industries such as aviation, which will support Pratt & Whitney in Connecticut, for example.

And of course, that should stabilize the stock markets, which carry a disproportionate weight in Connecticut, especially Fairfield County.

All of this is on top of cash payments of $ 1,200 to most taxpayers, perhaps an additional $ 1 billion or more, and huge increases for those registered as unemployed, as well as a widening of unemployment to self-employed. About $ 340 billion more would go to hospitals and other targeted locations, including block grants to states worth at least $ 1.25 billion per state.

There is no way to ensure that the people who suffer the most are helped the most, proportionately. No bailout can do this, especially in a recession caused by the intentional shutdown of the economy in an attempt to save lives during a pandemic. That’s why Democrats fought hardest to strengthen social safety net programs and Republicans fought hard for the general bailout of the industry.

At the state level, Lehman has spoken to banks in hopes of getting them to lend more to small businesses. The problem with any loan is that in the coronavirus crisis, we are essentially killing vast consumer and business spending while sheltering in place, and spending is the lifeblood of the lending system.

The banks are clearly striving to keep their existing customers afloat, said Lehman, a former partner of Goldman Sachs. “I don’t know how many new credits are going to come out,” he said. “They all say they’re working with their new borrowers.

He’s waiting for data. And as for the state loan program, he said, it could be revived.

Both state and federal government loan programs will go through the banks, which Lehman says is faster.

“There is absolutely a sense of urgency that we have here,” he said during Governor Ned Lamont’s daily press briefing at the state armory in Hartford. “The banks have the network, they have the customer relationship. They have the ability to deploy that money …. That’s absolutely the way to do it effectively.

All told, the federal stimulus assumes an impact on the economy of around 10%, which would be unimaginable as a sudden drop into a normal recession. In this crisis, that might underestimate the decline, although many expect a rapid recovery once the immediate health crisis subsides.

And large as it is, the direct government stimulus is in addition to the unlimited purchase of treasury securities by the Federal Reserve, which has the effect of filling banks’ balance sheets with capital at low or no cost. This policy, known as quantitative easing, or QE, also lowers Treasury interest rates, prompting private investors to seek deals that bring the economy back to life.

“They went from zero to almost 100 miles an hour immediately,” said Lehman.

It remains to be seen whether the state will have to deplete its planned $ 2.8 billion rainy day fund and how the federal government and the banking system will have to pay for this massive print of new money. The idea, as always, is this: If the economy grows, all debts are covered. If it goes down, the debt becomes a shoe of cement.

Editor-in-chief Ken Dixon contributed to this story.

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