The Paycheck Protection Program is expected to get a much-needed facelift, but not all of its wrinkles will disappear.
On Thursday, the House of Representatives passed the Paycheck Protection Program Flexibility Act, a bill that extends the amount of time in which businesses can use their paycheck protection loans and offers greater flexibility on how to spend funds. The bill will now go to the Senate, which is expected to request some key changes.
The finalized House bill, first proposed by Dean Phillips (D-Minn.) and Chip Roy (R-Texas), extends the covered loan period from June 30 to December 31. The measure also eliminates an earlier rule that penalized businesses in their loan forgiveness calculation if they did not maintain their pre-crisis head counts. And it codifies an earlier ruling providing safe harbor for business owners who made a good-faith effort--but were ultimately unable--to rehire furloughed or laid-off staff.
The bill doesn't eliminate rules on expense ratios, which many businesses found onerous, that specify how PPP funds can be spent. Instead of eliminating the current 75-25 split between payroll and other costs, as was laid out in the original proposal from Roy and Phillips, the House tweaked the ratio. For full forgiveness, the bill requires businesses to spend just 60 percent of PPP funds on payroll costs like salaries and benefits and 40 percent on other allowable expenses. Lawmakers also voted to extend the repayment period for PPP loans from two to five years, but declined to make it retroactive for those who had already taken PPP loans.
"We were disappointed by the 60-40 compromise," said Karen Kerrigan, president of the Small Business & Entrepreneurship Council, a nonpartisan advocacy group in Vienna, Virginia. "This will continue to be a barrier for some small businesses in accessing the program, but we are hopeful PPP loan demand will pick up once the other PPP changes are signed into law." Some 4.4 million businesses have already tapped $510 billion in funds from an available $669 billion.
In a tweet on Friday, Senator Marco Rubio (R-Fla.), chairman of the committee overseeing small businesses, noted two potential administrative problems with the House bill that he'll most likely want to address in whatever version the Senate reviews.
In the end, the bill marks progress for business owners--particularly as they head into this uncertain period of reopening, in which greater flexibility will be vital, says Tom Sullivan, the U.S. Chamber of Commerce's vice president for small-business policy: "Making it easier for small-business PPP borrowers to convert their low-interest SBA loans into grants will free up capital Main Street needs to emerge from the pandemic."
Here are four key ways the House bill changes the PPP:
- Gives borrowers 10 months from the last day of the covered period--or alternative covered period--to apply for loan forgiveness.
- Once they apply, businesses can defer principal payments, interest, and fees until the final forgiveness decision is made between lenders and the SBA. Currently, borrowers can defer payments for up to six months. But recently updated forgiveness guidance gives banks 60 days to review forgiveness applications, and then the SBA gets another 90 days to make a ruling. Accumulated delays mean some businesses might need to start paying on a loan that would eventually get forgiven. This bill would prevent that.
- Expands the forgiveness period for expenses from eight weeks to 24 weeks. Currently, only money that gets spent in eight weeks from the loan disbursement date--or the date of the first pay period after the loan is disbursed--is eligible for forgiveness.
- Allows the deferment of the employer portion of payroll taxes. This bill strikes the paragraph in the Cares Act that prevents business owners who receive forgiveness on their PPP loans from deferring their payroll taxes. Taxes incurred in 2020 are to be paid in two installments: Half is owed by December 31, 2021, and the other half by December 31, 2022.