On June 5, 2020, President Donald Trump signed into law a bill, the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), that will give borrowers of the US$670 billion PPP more time to spend the PPP proceeds and use them on a broader range of expenses while still qualifying to have the loans forgiven.
The law is intended to help address widespread concern that PPP borrowers may be stuck with the debt because the program’s requirements to have the loans forgiven are unduly burdensome.
Specifically, this legislation, which passed in the Senate by unanimous consent on June 3, 2020, and last week in the House in a 417-1 vote, will do the following:
- Extend the time period for PPP loan borrowers to expend loan proceeds from 8 weeks to 24 weeks from the date when the funds were received (or through December 31, 2020, whichever comes earlier), giving them more time to use PPP-provided cash flow to allocate dollars as necessary to survive the ongoing crisis;
- Grant additional flexibility to PPP loan borrowers in where they use those proceeds by lowering the amount they must spend on payroll to qualify for full loan forgiveness — to 60% instead of 75%;
- Extend from June 30, 2020, to December 31, 2020, the period by when an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan;
- Remove a reduced-headcount penalty for businesses facing workforce challenges by providing that the forgiveness amount must be determined (and shall not be reduced by) a reduction in the number of employees if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees, or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19;
- Extend the term of the PPP loans from two years to five years; and
- Repeal the provision of the CARES Act that denied payroll tax deferral benefits to entities that had received PPP loan forgiveness.
According to the Small Business Administration (SBA), since mid-May, net weekly PPP lending has actually been negative as fewer firms applied for loans, and some borrowers have returned them. Indeed, as of May 21, 2020, the SBA has approved US$512.2 billion in PPP loans – nearly US$150 billion less than the US$660 billion allocated to the program. As of today, about US$120 billion remains available for loans under the program; some believe demand can be stimulated if the forgiveness rules are relaxed, as the new law does.
Notably, enactment of this law was achieved despite initial resistance by Senate Republicans, particularly Senators Ron Johnson (R-Wisconsin) and Mike Lee (R-Utah), with Johnson on Wednesday blocking an initial attempt to pass the bill unanimously and demanding assurances about the legislation’s intent.
Moreover, Senate Small Business Committee Chair Senator Marco Rubio (R-Florida) and Senator Susan Collins (R-Maine) raised concerns with the drafting of the House bill under consideration that would deprive businesses of having any portion of their loan forgiven if they do not hit the 60% payroll requirement, but did not stand in the way of its passage in the Senate.
On Wednesday, Senate Majority Whip John Thune (R-South Dakota) told reporters that technical problems with the House bill will “have to get fixed in some fashion” but “legislatively how we do it is still an open question.” So, we expect further legislative activity intended to improve or repair aspects of the PPP and will report as warranted.
In separate developments, Senators Rubio and Ben Cardin (D-Maryland) on Wednesday sent a bipartisan letter to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza urging them to disclose more information on loans issued under the PPP, including the names of borrowers.
The SBA has yet to provide this information, sought by the senators weeks ago. The insistence by congressional overseers to have the Trump Administration fully disclose recipients of PPP loans and associated data will likely continue and shape congressional oversight of the program’s execution going forward.