When the economy is good, we all tend to be a little looser in how we spend our money.
Small-business owners are no different with their business expenses.
However, those times are now gone, possibly for a long time.
Eliminating costs not absolutely needed for running a business is now more essential than ever for small-business owners who can’t turn to shareholders for a cash infusion.
The small business loans under the Payroll Protection Program, now in effect as part of the Cares Act passed by Congress, are being approved by private lenders. These loans can be 100% forgiven if used in the correct way, primarily for payroll. Lenders have the SBA’s instructions for making this happen.
These PPP loans allow the small business to bring back employees while reducing payroll costs by up to 25%.
The funds not used for payroll can then be used for rent, utilities and interest on a mortgage while still being 100% forgiven.
Unfortunately, 25% of these loans probably still won’t be enough to cover all the utility, rent and mortgage interest during the eight weeks the loans are intended to cover.
So small-business owners need to look at ways of reducing costs now which will also benefit them in the future.
When the Affordable Care Act was passed back in 2010 and enrollment in the health insurance marketplaces started in 2012, the S.C. Small Business Chamber of Commerce advocated that this was the opportunity to have employees obtain comprehensive health insurance but not as an employee benefit.
Not only could this reduce costs to the business, it could reduce costs to employees, who on average pay 35% of the employer-sponsored health plans for themselves and 75% for family members.
Most workers in our state who get health insurance through the Affordable Care Act receive federal premium assistance, which dramatically reduces the cost of their health insurance premiums.
This premium assistance also applies to family coverage in these plans. The resulting cost savings to the average S.C. worker compared with being on a small business employer’s plan can be dramatic. The savings are realized while still having a health insurance policy as good or better than the employer’s plan.
For the small-business owner with fewer than 50 employees, the savings can be significant also. How much can the employer and employee save?
The health insurance broker our chamber uses to help our members save money gave instructions for small business owners with group health plans:
- Review employer and employee costs of the current group health plan.
- Determine the marketplace subsidy for each eligible employee.
- Calculate savings to the small-business owner and employees.
- If appropriate, help the small-business owner and employees enroll in a health insurance plan through the marketplace and drop the group health plan.
Ultimately, uncoupling all health insurance from employment would be in the best interest of all sizes of business in terms of costs and time administering health plans. Small businesses would then be on a level playing field with bigger businesses in attracting employees.
Small businesses, which already create most net new jobs in the country, will be in an even a better position to grow our economy. Entrepreneurship would come back from the 40-year low the country now faces with new business startups.
The silver lining of the COVID-19 crisis might be small businesses realizing that they and their employees have a lot to gain by using and growing the health insurance benefits under the Affordable Care Act.
Frank Knapp Jr. is the president and CEO of the S.C. Small Business Chamber of Commerce.