Late Tuesday, April 21, 2020, the Senate passed more than $480 billion in new funding for small business assistance, hospitals, and virus testing. After nearly two weeks of negotiations on an interim funding package, lawmakers agreed to an additional $320 billion for the depleted Paycheck Protection Program (PPP). The House is scheduled to vote on Thursday with the new funds available as early as Thursday evening or Friday morning.
ACTION: For all of you with PPP loan applications submitted, please call your lender ASAP and ask about the process and next steps as new funding appears imminent. For those that want to apply for a PPP loan, get to your lender first thing tomorrow so you are clear about what you need in order to apply. You want to have those materials ready to submit as soon as you hear “go!” The new round of funding will focus on community banks and lenders as well as small businesses in underserved communities. It appears at this time that approximately $60 billion is ear-marked for community banks and small lenders.
It is great news that the PPP program will have more money; HOWEVER, we have the same PPP guidelines, which there have been complaints about. Fixing the issues is now a key federal focus. Quoted from Congressman Roy’s letter to his House colleagues, here are the priorities for fixing:
- Unattainable eight-week timeline: The law under the PPP requires that forgiveness of the loan is tied to payroll over an eight week time period, and the SBA has guidelines saying that this time period kicks off no later than 10 days after the loan is approved (at the time the funds are disbursed). Even worse, some businesses are seeing the start date actually pre-date the loan – based on a date put on the documents. There are several problems – but in short, we are asking restaurants, hotels, and others who are stuck with zero to few customers to now go rehire their laid off workers to try to get forgivable financing, and do so A) without knowing if they will get future financing if needed, B) not knowing when they will be “allowed” to reopen, and C) recruiting workers from a more lucrative unemployment insurance program.
- Limited ability to have expensive rent/mortgage forgiven: The PPP requirement that 75% of the forgivable loan must be for employee payroll means that restaurants in areas with expensive rent, who are trying to figure out how to stay afloat (and in the process, make sure our real estate markets don’t collapse) are put in an untenable position. If their rent is more than 25% of the total, that portion will not be forgiven. We aren’t accounting for differences in business structures (payroll versus other operating expenses / liabilities) This means the government is picking winners and losers in the survivability lottery through PPP and will make it harder for these restaurants to stay afloat.
- Loan repayment timeline: Given the complexity of the small businesses getting most hammered for trying to get their loans forgiven (per above), the two-year loan repayment is another “risk” for them to roll the dice on during a tumultuous period filled with uncertainty. How are these small businesses supposed to navigate getting a loan, trying to hire folks, and hoping they can get some of the loan forgiven, only to find out they can’t? On top of that, then they have to start repaying the loan on the timeline in six months, and finish repaying it in two years.
- Previous losses from shutdown are ignored and no firm re-open date is known: Many businesses, particularly restaurants, took massive amounts of losses at the hands of government orders for “stay in place” measures and limits on the ability to stay open. Restaurants lost mass quantities of food and perishable goods. Without being able to count previous losses toward the “forgivable” loan, it makes it difficult for those businesses to gamble on re-opening and having to stock up on more perishable items without risking massive losses. The PPP was designed to focus on keeping people employed, but for those for whom that was too late or who have much deeper issues, “keeping people employed” requires some adaptability in how, when, and where those funds can be used.