COVID-19 SBA PPP Legislative Update

Changing the PPP rules would be of great benefit across the board. Congress’ CARES Act was based on a two-month period. Congress did not anticipate or plan for many of the glitches and questions things that have unfolded since initial passage.

Last week, on May 27, 2020 the House passed legislation, Paycheck Protection Program Flexibility Act, H.R. 7010, loosening the requirements for PPP loan forgiveness.

The House bill:

Extended the 8-week spending period to 24-weeks or December 31 whichever comes first;

Lowered the 75% floor for eligible payroll costs to 60%;

Extended the two-year repayment term to five;

Extended the deadline to rehire workers from June 30 to December 31; and,

Provided that borrowers who obtained SBA PPP loan forgiveness can also defer payment of payroll taxes.

The House bill clarifies that a borrower doesn’t have to start repaying a loan until the SBA determines whether it can be forgiven.  But it appears also to do away with proportional and partial loan forgiveness.

The Senate attempted a bill the week before the House passed H.R. 7010.  But requiring a vote by the full Senate caused it to fall flat.   That bill called for the 8 weeks to be 16 weeks and left the 75% at 75%.  That 75% is very much favored by Treasury. With the face of Treasury, Secretary Steven Mnuchin, saying Congress’ intent was to get money to employees and that 25% for other expenses was very fair and that those people who want to use more money for overhead can go out and borrow an EIDL. What an understanding guy.  The Senate bill provided for spending on personal protective equipment and certain reopening expenses as allowable and forgivable non payroll costs.

Changing the rules would be of great benefit across the board.  Congress’ CARES Act was based on a two-month period.  Congress did not anticipate extended stay-at-home orders.  Congress did not anticipate partial, phased-in openings.  Congress did not plan for lack of uniformity across state lines, much less across county lines and city lines.  Loans are disbursed and sitting in accounts – but businesses are not open or businesses are open 25 or 50%.  Makes it challenging to pay eight weeks of payroll in eight weeks. And not all small businesses are labor driven, perhaps they are supplies or materials or occupancy costs driven.  And there are the businesses who were closed that need inventory to reopen in order to bring back employees.

Where we are at now.  The Senate, meaning its Majority Leader, wants to fast track the House’s bill by making no changes and using unanimous consent.  This would be simple and expedient as The House has decided to stay at home until June 30 and “follow public health guidelines”.  Unanimous consent is ALL senators present agreeing YES OR NO to H.R. 7010 without objection. There is no vote.  This could very well be a possibility as the PPP and helping America’s Small Businesses is something that should be bipartisan and noncontroversial.   But, getting 100 people to agree on anything doesn’t happen very often.

On that note, let’s keep an eye on the Senate Small Business Chairman, Marco Rubio who last week stated his concern that the House passed legislation, Paycheck Protection Program Flexibility Act, H.R. 7010, “could create an unintended disincentive to rehiring and create new and serious burdens for PPP borrowers in terms of forgiveness.”  The disincentive referred to is the Federal Pandemic Unemployment Compensation that provides the $15/hour “living wage” for up to 39 weeks.  The new serious burden is House language took away partial forgiveness making the 75-25 outcome all or nothing.  Rubio’s first move has been to ask Treasury if they could fix this during implementation.  This would make for fast law but ultimately gives Treasury legislative and judicial power and oversight over their own rules.

The other thing to we need to keep watching out for is whether expenses paid for with PPP funds will remain nondeductible.

PPP Update.  As of 5 p.m. ET last Wednesday, the SBA had approved about 4.4 million PPP loans totaling more than $510.5 billion with an average loan size of $114,000.  More than $135 billion in PPP funds remained available for additional lending as of last Wednesday.  More than 707,000 EIDLs have been made, totaling $55.7 billion.  In a statement earlier today, Senator Marco Rubio said 336,000 Florida businesses received 30 billion dollars in PPP loans.

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