Small businesses could soon see a rollback of several universally loathed measures attached to the original Paycheck Protection Program, the $669 billion loan and grant initiative aimed at helping small businesses keep employees on the payroll.
When the House convenes next Wednesday, it is expected to vote on the Paycheck Protection Program Flexibility Act, a standalone bill that would, among other things, lengthen the time businesses may spend the funds from their PPP loans. The bill would also eliminate the requirement that 75 percent of a loan's proceeds must be spent on employee pay and benefits. The measure was originally proposed on May 15 in the House by representatives Dean Phillips (D., Minn.) and Chip Roy (R., Texas).
"Every day counts with these reforms, with many small businesses wondering what to do next," says Karen Kerrigan, president of the Small Business & Entrepreneurship Council, a nonpartisan advocacy group in Vienna, Virginia. Kerrigan adds that she suspects that the unenthusiastic uptake of the second tranche of PPP funding, which still has more than $100 billion in available funds, is a direct result of these restrictions.
It's not clear when the Senate will take up the measure. On Thursday, Senator Marco Rubio (R., Fla.), chairman of the committee overseeing small businesses, was expected to introduce the measure for a vote of unanimous consent.
Regardless of when the Senate acts, passage looks likely. In recent days, President Trump has met with restaurant executives and other industry groups that have called for greater flexibility in the program. In particular, executives have asked to extend the eight-week period to at least 24 weeks as states gradually reopen.
Treasury Secretary Steven Mnuchin acknowledged that compliance in the eight-week time period was difficult for many businesses. "Many of the restaurants are just beginning to open up," Mnuchin told CNBC earlier this month. "They'd really like to hold the money. They can't do that, that's not something we can do. But we're working with a technical fix."
Here are the proposed top-level changes to the PPP if the bill gets passed.
1. Expands forgiveness for expenses beyond the eight-week period.
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. This bill would extend that forgiveness time frame from eight to 24 weeks.
2. Eliminates the requirement that non-payroll expenses be capped at 25 percent.
To get loans forgiven, businesses are currently required to devote a minimum of 75 percent of the proceeds to payroll costs like salaries and benefits; just 25 percent may be spent on other allowable expenses such as rent, mortgage interest payments, and some utilities. But for businesses that received their PPP loan while stay-at-home orders were in place, it often meant paying employees to stay home. Moreover, for some businesses, payroll simply isn't the biggest expense. The bill eliminates that restriction, giving businesses greater flexibility with how to use their PPP funds.
3. Extends loan terms beyond two years.
PPP loans are forgivable, but it will be the rare case in which a small-business owner will have her entire loan forgiven. This means the money must be repaid. And with an amortization period of two years--or 18 months should the borrower defer payments for six months--payments can become intense, even with a low, 1 percent interest rate. Here's an example: The debt service on a loan worth $206,000 (the average loan size during the PPP's first tranche) is $8,700 each month if the repayment period is 18 months. Typical SBA loans have far longer time horizons. It's not clear what the repayment timeline would become under the new bill.
4. Allows a payroll tax deferment for businesses.
While PPP money doesn't count as taxable income, a recent Internal Revenue Service ruling confirmed that businesses taking the money can't also deduct the cost of wages or other expenses if they are paid for with PPP money. It would be viewed as double-dipping. This new bill would allow businesses to at least defer payroll taxes.
5. Extends the deadline to rehire furloughed or laid-off workers.
For loan forgiveness, businesses with PPP money must rehire employees who've been let go as a result of the pandemic by June 30, 2020. The new bill extends that deadline to align with the expiration of enhanced unemployment insurance, which was created through the Cares Act and provides an additional $600 a week to unemployed workers. That's set to expire on July 31, but the measure may get extended by lawmakers in the interim.