McConnell Seeks Fast Track to Ease PPP Rules for Small Business

Senate Majority Leader Mitch McConnell will attempt to expedite approval of changes to the popular Paycheck Protection Program aimed at giving small businesses more flexibility in using the money from the fund, according to Senate aides.

McConnell is seeking to move the bill, passed by the House last week, by unanimous consent in the Senate if no senators raise objections to a notice to lawmakers, according to the aides.

The bill would extend the 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 years, to repay any money owed on a loan and could use a greater percentage of proceeds on rent and other approved non-payroll expenses.

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

“I hope and anticipate the Senate will soon take up and pass legislation that just passed the House by an overwhelming vote of 417-1 to further strengthen the Paycheck Protection Program so it continues working for small businesses that need our help,” McConnell said on the Senate floor Monday.

It is not yet clear if all senators will agree to the bill without changes.

Senate Small Business Chairman Marco Rubio, a Florida Republican, said in a statement last week that some provisions in the House bill “could create an unintended disincentive to rehiring and create new and serious burdens for PPP borrowers in terms of forgiveness.”

He said he would work to ensure that “necessary changes to increase flexibility do not inadvertently harm business owners and employees in the process.” Rubio had asked the Treasury Department whether it could address the problems during implementation of the bill.

The House has left Washington with the next scheduled vote on June 30. Agreeing to the House bill without changes would be the fastest way for the PPP bill to become law.

The House bill, H.R. 7010, would lower to 60% the current requirement that 75% of a loan be used on payroll. Restaurants and other small businesses have said they want flexibility to spend more on overhead expenses, especially in high-rent areas.

Rubio said the House language creates a problem for companies that use less than 60% of a loan on payroll. The current PPP program allows partial loan forgiveness if a company uses less than 75% of a loan for payroll, but the House bill appears to state that none of the loan would be forgiven if the 60% threshold isn’t met.

Loan Forgiveness

The program currently requires that for a PPP loan to be forgiven, at least 75% must be spent on payroll during the eight weeks after funds are received. If that percentage isn’t met, or a firm reduces head count or salaries, the amount forgiven is reduced and must be repaid in two years at 1% interest.

The idea was to help businesses keep employees on payrolls amid stay-at-home orders so they would be ready to reopen and workers aren’t thrown out of jobs.

But restaurants and other firms said the PPP rules don’t work for them because they won’t be ready to reopen or be back to full capacity after eight weeks, or need more money for rent and other expenses — and they don’t want to be on the hook to repay a loan they thought would be a grant.

The timing on legislative action matters because last Friday started the period when firms that got funding when the program launched on April 3 could start applying with their lenders to have their loans forgiven.

The dollar amount of new PPP loan approvals has stalled with about $130 billion remaining in the second round of funding because loans are being canceled. That includes businesses returning money amid concerns they won’t be able to spend it during the eight-week forgiveness period or with SBA promising to audit loans to ensure borrowers properly certified they were “necessary.”

Canceled Loans

As of last Friday evening, SBA reported that almost 4.5 million loans had been approved worth $510.2 billion – which was almost $300 million less than the net amount the day before and more than $3 billion less than through May 16, despite the number of loan approvals increasing during that time.

The SBA and Treasury Department, which oversee the program, haven’t provided a comprehensive accounting of cancellations, which include duplicate loans. Some returns are from larger publicly traded companies that sent back hundreds of millions of dollars following outrage over their getting aid at the expense of mom-and-pop stores, prompting an SBA vow to audit all loans of more than $2 million.

Even as the economic damage from the pandemic continues to hit hard across the U.S., executives at the largest U.S. banks, speaking on the condition of anonymity, have said that they don’t foresee demand for loans picking up again without major changes to the program.

The initial round of $349 billion in PPP funding was exhausted on April 16 after just 13 days as millions of small businesses flooded lenders with applications. Small-business advocates had expected the second round of $320 billion that launched April 27 to be tapped within days as well.

Besides concerns about the eight-week and 75% payroll rules, advocates also said SBA and Treasury were late in issuing rules on how to calculate loan forgiveness — leaving businesses confused and concerned about whether they’d have to repay all or part of loans they couldn’t afford.

— With assistance by Laura Litvan, and Josh Wingrove

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