Senate Republicans Propose Additional Loans for Small Firms
(Bloomberg) -- Senate Republicans are proposing further aid to U.S. small businesses hit by the coronavirus pandemic.
A second round of the Paycheck Protection Program would target help to those worst affected, and a new government-guaranteed, long-term loan initiative of almost $60 billion would be created for seasonal firms and those in low-income communities.
The proposal, released Monday, is the opening bid by Republicans in negotiations with Democrats on additional help for small businesses as part of the broader coronavirus relief and stimulus package Congress is trying to pass in the coming weeks.
Senate Republicans would create a new program with Small Business Administration loans of as much as two times a borrower’s annual revenue, not to exceed $10 million, with a maturity of as long as 20 years at 1% fixed interest and payments deferred for two years, according to a summary of the plan.
It’s designated for seasonal businesses and those in low-income communities with 500 or fewer employees that have had at least a 50% reduction in revenues in the first or second quarter of this year compared with last year. The funds could be used for working capital, acquisition of fixed assets to refinance existing debt, the plan showed.
“It provides them flexible, long-term working capital to help ensure that these most vulnerable and underserved small businesses don’t go out of business because of the pandemic,” Senator Marco Rubio of Florida, chairman of the Small Business & Entrepreneurship Committee, said on the Senate floor.
The GOP plan also calls for another round of PPP, with the option of companies getting a second loan of as much as $2 million that would be limited to firms with up to 300 employees and at least a 50% cut in revenue. It would set aside $25 billion for entities with 10 or fewer workers and $10 billion for loans made by community lenders, according to the plan summary.
The proposal would earmark $190 billion in existing and new funding through year-end to support the PPP. The original program, which is set to expire Aug. 8, had about $130 billion in remaining funds as of July 24, according to the SBA, which runs the program with the Treasury Department.
The plan also would allow for more flexibility to spend PPP proceeds on personal protective equipment and other needs for workers and customers, according to Republican Senator Susan Collins of Maine. The loans can become grants if 60% of the proceeds are spent on payroll.
Democrats have generally supported another round of PPP but have differed on how to target the aid. A bill introduced last month by Democrats including Senator Ben Cardin of Maryland, the top Democrat on the Small Business & Entrepreneurship Committee, called for extending the current PPP until the end of the year and allowing a second round for firms with 100 employees. It would also reserve some funding for the smallest companies and those in underserved and rural communities.
The Republican PPP proposal also contains other elements that small-business advocates have been seeking, including simplifying the process to forgive PPP loans of less than $150,000. Under the current rules, all borrowers must apply with their lenders to have loans become grants, and show they maintained headcount and salaries.
Small-business advocates say borrowers with small loans should be able simply to certify that they followed the rules, and provide documentation only if asked. A coalition of almost 150 groups sent a letter to legislative leaders this month calling for the threshold to be set at loans of $150,000 or less -- which would be about 4.3 million loans, or 87% of the total approved as of July 24, according to the SBA.
“Let’s not make every single small business hire accountants and attorneys to figure out how to do this,” said Tony Wilkinson, president and chief executive officer of the National Association of Government Guaranteed Lenders.
The PPP, which launched April 3, has approved more than 5 million loans totaling $519.8 billion as of Monday night, according to the SBA. Supporters say it helped millions of firms keep tens of millions of workers employed. Critics say the smallest companies and those in disadvantaged areas have been shut out while politically connected businesses and firms that aren’t struggling have gotten funding.
Surveys show many small businesses are expecting to furlough workers even after using a PPP loan, and still need additional financial help as they struggle to recover amid spiking coronavirus cases and mounting re-opening costs.
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