Will the new PPP law help small businesses rebound?
On June 5, President Donald Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPPFA).
The legislation relaxes some of the earlier provisions of the Payroll Protection Program (PPP), which now has between $127 to $130 billion left in federal funds for private loans to small businesses disrupted by the coronavirus. The PPP also offers loan forgiveness eligibility.
The U.S. Small Business Administration (SBA) and U.S. Treasury Department administer the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Rep. Dean Phillips (D-MN) and Rep. Chip Roy (R-TX) co-sponsored the PPPFA, drawing bipartisan support from lawmakers in a 417-1 vote in the House of Representatives on May 28 and a unanimous vote in the Senate on June 3. Legislators’ aim is to make PPP compliance less burdensome and increase program participation.
The push for reform reportedly stemmed from lawmakers’ responses to complaints by employers and input from small business groups about the PPP’s feasibility. In a media release issued May 28, the Minnesota lawmaker said that the PPPFA was endorsed by a coalition of 55 organizations representing chambers of commerce, medical and dental associations, industry groups, ethnic business organizations, and other affiliations.
Key Legislative Changes
Central to PPP reform are deadline extensions and greater coverage of nonpayroll expenses. The PPPFA amends the original loan program by:
- Extending the period for using PPP funds from 8 to 24 weeks
- Extending the deadline for rehiring laid-off and/or furloughed workers while still qualifying for loan forgiveness from June 30 to December 31
- Reducing the amount of PPP funds for payroll expenses from 75% to 60% for loan-forgiveness eligibility
- Allowing borrowers 5 years instead of 2 years to repay their loan
- Deferring the payroll taxes of borrowers, even if they receive loan forgiveness
- Allowing PPP lenders to increase loans for partnerships
- Allowing partnerships and seasonal employers to borrow more PPP funds
- Permitting seasonal employers to calculate their average monthly payroll on February 15, 2020, or for an 8-week period between February 15, 2019, and June 30, 2019.
In a major overhaul of the original PPP provisions, businesses seeking loans under $2 million no longer have to prove they were affected by COVID-19; the government assumes that companies with fewer resources will apply for funds in good faith, according to updated PPP guidance released by the SBA and Treasury Department just days before Congress passed the PPPFA.
The SBA and Treasury also released the application form for loan-forgiveness for small businesses to access online.
According to the National Federation of Independent Businesses (NFIB), reform legislation comes just as the 8-week deadline for applying for loan forgiveness is approaching for many SMBs with PPP loans. In a May 28 public statement released before the PPPFA became law, Kevin Kuhlman, NFIB’s vice president of government relations, cited the importance of greater PPP flexibility:
“Small business owners are working hard to safely and swiftly reopen and rehire. They are doing all that they can to support their employees and ensure that they are in full compliance with the provisions of the Paycheck Protection Program loan terms,” said Kuhlman. “The Paycheck Protection Program Flexibility Act of 2020 grants small business owners urgently needed flexibility by extending the loan forgiveness period and reducing the payroll limitation of the program.”
Loan stats for SMBs
The PPP as originally conceived fell short of many SMBs’ expectations. The program ran out of money before many businesses applied, pressure to get staffing levels up to pre-pandemic levels seemed impossible, and funding was only available through lending institutions enrolled in the program.
But results from an NFIB survey found that:
- 77% of survey respondents have applied for a PPP loan and the overwhelming majority – 93% – have received funds
- 24% of borrowers are in the early stages of their 8-week loan period, 36% will be at the end of their 8 weeks by the second half of June, and just 7% are now near or at the end of their 8-week period
- 67% of survey respondents said the loan helped sustain their businesses, while just 2% did not find the loan helpful
- Drawn to the loan forgiveness provision, a quarter of borrowers have used 75% of their loan, compared to a third who used 50 to 75% and 4% who have used their entire loan
With the PPPFA’s deadline extensions and billions of dollars in potential loans still available, can SMBs rebound and stay financially healthy through the pandemic, rising unemployment and an economic downturn? Lawmakers appear hopeful about the new law, but SBAs will know whether it’s effective in the months ahead.