Fixing the Paycheck Protection Program for small businesses is an urgent priority.
The Paycheck Protection Program (PPP), provided by the CARES Act, has given needed relief via potentially forgivable loans to small businesses hurt by the COVID-19 pandemic. However, despite ample funding of $659 billion, the PPP was enacted with many flaws. These have been widely reported by many media outlets, from CBS News and The New York Times to Inc. and even Eater New York. In addition, there is a simmering issue over whether the FAQs issued by the Small Business Administration (SBA) to patch up the PPP flaws are actually valid and enforceable.
Now Congress is trying to fix the PPP, but its first effort has already stalled. The massive 1,800-page HEROES Act, passed by the House of Representatives on May 15, includes provisions that modify and expand the Paycheck Protection Program (see Division I on Small Business Provisions, starting on page 15). However, for reasons stemming from other areas of the bill, Senate Republicans have made it clear that the HEROES Act will not pass the Senate in its current form.
You’re not alone if you question the wisdom of cooking up massive, wide-ranging bills with little legislative review instead of a more targeted approach to lawmaking. As the chef of any currently closed small-business restaurant knows, a dish shouldn’t leave the kitchen if you don’t understand all the ingredients that went into it. Even the lawyers and accountants paid to absorb and understand these vast acts cannot quickly digest all the details. Moreover, it is the reverse of helpful for small businesses if the needed PPP repairs get hung up because of political conflicts over unrelated other parts of the HEROES Act.
To fix the PPP, there is a more efficient route that Congress should consider immediately: the Paycheck Protection Flexibility Act. This is a separate bipartisan bill proposed by two legislators in the House of Representatives last week.
Standalone Law Targets What’s Wrong With The PPP
Rep. Dean Phillips (D-MN) and Rep. Chip Roy (R-TX) announced the Paycheck Protection Flexibility Act on May 11. According to their jointly issued press release, the legislation seeks to achieve the following (the text below is quoted from release):
1. Allow forgiveness for expenses beyond the 8-week covered period. The 8-week timeline does not work for local businesses that are prohibited from opening their doors, or those that will only be allowed to open with restrictions. Businesses need the flexibility to spread the loan proceeds over the full course of the crisis until demand returns. Otherwise, employees will simply be furloughed at the expiration of the 8 weeks. We want employers to be able to keep their employees on the payroll, not furlough them without pay or terminate them entirely.
2. Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds. In order to survive, businesses must pay fixed costs. The PPP loans require that 75% of the loan go to payroll. For many businesses, payroll simply does not represent 75% of their monthly expenses and 25% does not leave enough to cover mortgage, rent, and utilities. Retaining employees is not possible if a business cannot retain their physical location.
3. Eliminate restrictions that limit loan terms to 2 years. According to the American Hotel and Lodging Association, full recovery for that industry following both the September 11, 2001 terrorist attacks and the 2008 recession took more than two full years. This is the same for many other industries. If the past is any indication of the future, it will take many businesses more than two years to achieve sufficient revenue to pay back the loan.
4. Ensure full access to payroll tax deferment for businesses that take PPP loans. The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis. Receiving both should not be considered double-dipping. Businesses need access to both sources of cash flow to survive.
5. Extend the rehiring deadline to offset the effect of enhanced Unemployment Insurance. To receive loan forgiveness under PPP, a business must rehire employees by a deadline of June 30, 2020. However, the enhanced Unemployment Insurance created through the CARES Act is higher than the median wage in 44 states. Many businesses have reported an inability to rehire employees because they are making more on Unemployment than they made working. To mitigate this unintended consequence, the deadline to rehire employees under PPP should be extended to align with the expiration of enhanced Unemployment Insurance.
I have received an advance copy of the three-page discussion draft of the bill, reproduced below (click on the image to read the text).
Office of Rep. Dean Phillips, US House of Representatives
Will It Be Voted On?
In an email message, Congressman Phillips told me that, along with the passage of the HEROES Act, he has “secured a vote before month’s end on the bipartisan Paycheck Protection Flexibility Act to fix the PPP.” He emphasized his concerns that small businesses across the country are facing insolvency, particularly restaurants, music venues, and other companies that depend directly on interaction with the public. “Many are operating week to week, let alone month to month,” he observed.
“Most of us on both sides of the aisle agree on 80% of the [HEROES Act] package,” he added, “and I’m already working with Republican and Democratic colleagues to ensure we find common ground quickly and take steps to improve the process by which we legislate.”
There are a few other bills in the House and Senate with different approaches that go beyond simply trying to fix the current PPP. See, for example, an article from The Wall Street Journal about alternative bills and an article in Black Enterprise about a proposal from Senators Cory Booker and Ben Cardin. However, at the moment, the Paycheck Protection Flexibility Act appears the most likely to get serious consideration.
Currently small businesses and their legal and accounting advisors are focused on the form and instructions just released by the SBA on how to apply for PPP loan forgiveness, the latest non-legislative patch to the program. Nevertheless, given the urgency of financial relief for small businesses, they should look at what the Paycheck Protection Flexibility Act seeks to do, and perhaps contact Congress to express support for it.
My other PPP loans articles at Forbes.com
Stimulus Checks Blogs/articles:
How Much Do Your Friends, Relatives, And Co-Workers Earn? Stimulus Payments Provide The Answer (my effort at creative writing on the topic!)
Unemployment Benefits For The Self-Employed
Real Estate Sales And COVID-19