Senate passes changes to small business PPP loan program

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The Senate cleared changes to the popular Paycheck Protection Program on Wednesday that will allow small businesses more flexibility in using the rescue loan funds. The bill, which passed the House last week on a 417-1 vote, now heads to President Donald Trump’s desk for his signature.

Senators gave unanimous consent for the legislation hours after Ron Johnson, a Wisconsin Republican, had raised objections.

The coronavirus program provides forgivable loans to help small businesses make their payrolls during the COVID-19 crisis. The bill would extend an eight-week period — when proceeds must be spent for loans to be forgiven — to 24 weeks or until the end of the year, whichever comes first.

Businesses would also have as long as five years, instead of two, to repay any money owed on a loan, and they could use a greater percentage of proceeds on rent and other approved non-payroll expenses.

Timing is urgent because the eight-week spending period began expiring last Friday for the first loan recipients after the Small Business Administration program opened April 3. Businesses — especially in the restaurant and hospitality industry, which are only recently getting the green light to reopen — say they need more time to distribute pay.

Utah Senator Mike Lee had also objected to language that he and Johnson said would lengthen the application deadline. Maine Senator Susan Collins didn’t oppose the bill but said she was concerned about the way the House drafted a provision reducing the current requirement that 75 percent of a loan be used on payroll.

Lee’s office said that the senator agreed to passage of the bill after securing a letter signed by the chairmen and ranking members of the Small Business Committee clarifying that the application deadline remains June 30.

Besides extending the loan-forgiveness period, small businesses have said they want flexibility to spend more on overhead expenses, especially in high-rent areas. The bill, H.R. 7010, would instead require that 60 percent of a loan be used on payroll.

The House bill creates a “cliff,” Collins said in a statement. The current PPP program allows partial loan forgiveness if a company uses less than 75 percent of a loan for payroll, but the House bill appears to state that none of the loan would be forgiven if the 60 percent threshold isn’t met.

“Instead, the employer is saddled with a debt for the entire amount, and no portion of the loan is forgiven or converted to a grant,” Collins said.

Senate Small Business Chairman Marco Rubio, a Florida Republican, last week sought guidance from the Treasury Department on whether that issue can be addressed through regulation.

The Treasury and the SBA haven’t responded to requests for comment.

Funds remaining

As of Wednesday night, SBA reported that 4.5 million firms had received approvals for loans totaling $510.6 billion. About $130 billion remains from the second round of $320 billion that Congress approved for PPP. The initial round of $349 billion was tapped in just 13 days.

Small business advocates hailed passage of the bill as providing needed flexibility to firms still struggling to emerge from Covid-related closings, even as lenders and other groups are still seeking other program changes they hope Congress can make in the coming weeks.

Sean Kennedy, executive vice president of the National Restaurant Association, representing thousands of owners and chains including McDonald’s Corp., said in a statement the passage is “a win for restaurants and small businesses across the country.”

The U.S. Chamber of Commerce said a new survey it released Wednesday with MetLife showed that while eight of 10 small businesses are in the process of re-opening, 55 percent think it will take more than six months to be fully operational — up from 50 percent in an April poll and 46 percent in March.

“Congress deserves credit for removing barriers that could slow recovery further,” the chamber said in a statement. “We urge the president to sign the legislation quickly and for SBA and Treasury to immediately provide guidance to small businesses on how they qualify for loan forgiveness under the new law.”

A National Federation of Independent Business survey of its members last week showed that a majority have their loan-forgiveness period ending in the next couple of weeks. The group said in a statement it is pleased the Senate passed “much-needed flexibility for small business owners” and “we look forward to continuing to work with members in the chamber on improving” the program.

Lenders are seeking to simplify the process of applying to have loans forgiven by allowing borrowers with loans of a certain amount to simply certify they followed the rules, rather than having to make complicated calculations with rules that keep changing.

“Much more needs to be done on this bill,” said Paul Merski of the Independent Community Bankers of America. “This is largely a Senate punt on fixing the issues with the PPP program.”

There was broad support during a Senate Small Business Committee hearing Wednesday for extending the eight-week loan forgiveness period and changing the rule that 75 percent of proceeds must be spent on payroll.

Republican Senator Joni Ernst of Iowa highlighted a sportswear business in her state that kept 27 workers employed with a PPP loan despite a 96 percent decline in revenue. But with ballparks and other venues where the apparel is sold still closed — and the firm’s eight-week period expiring this week — the workers will be furloughed, she said.

Michael Strain, director of economic policy studies at the American Enterprise Institute, called the 75 percent payroll rule — set by SBA and Treasury — “a mistake” because it limits the program’s ability to help companies such as those in high-rent cities that need to spend more money on expenses.

“A business that cannot pay its rent also cannot continue paying its workers,” Strain told the committee.

— With assistance from Ben Brody

Bloomberg News
Paycheck Protection Program CARES Act Coronavirus SBA Small business