Trump Administration Keeps Payroll Requirement for PPP Loans
Trump Administration Keeps Payroll Requirement for PPP Loans
(Bloomberg) -- Small businesses concerned about how much they might have to repay in popular coronavirus relief loans finally got more guidance from the Trump administration -- but they didn’t get the changes that many wanted.
The Small Business Administration and the Treasury Department on Friday released a new application and step-by-step instructions for how to calculate the portion of Paycheck Protection Program loans that can be forgiven.
The 11-page document outlines what documentation is needed as well as what the agencies said are measures “to reduce compliance burdens and simplify the process.”
The instructions don’t change the requirement that at least 75% of proceeds must be spent on payroll within the eight weeks after the loan is received, even after small business groups lobbied to open up those restrictions.
Restaurants and other small concerns want to be able to spend more on expenses and want a longer period for spending the proceeds because they won’t be ready to re-open or fully in operation during that period.
Borrowers said they needed the guidance because they didn’t want to face repaying a loan they couldn’t afford. Some were even holding the money or returning it because of the lack of clarity. Lenders didn’t know how to complete the process or advise clients. Time is short because funds must be spent within the two months after they’re received to qualify for forgiveness.
The SBA and Treasury missed a deadline last month that was outlined in the legislation creating the program. Guidance and regulations for loan forgiveness was to be issued “not later than 30 days after the date of enactment of this act,” which would have been April 26.
Besides the application and instructions released Friday night, the SBA will also soon issue regulations and guidance to further help borrowers complete their applications for loan forgiveness and to provide lenders with guidance on their responsibilities, the agencies said in a release.
The program provides loans of as much as $10 million that don’t have to be repaid if proceeds are spent on payroll, rent, utilities and mortgage interest. The forgivable amount is reduced if owners cut jobs or wages, and the balance must be repaid at 1% interest in two years, with the first payment deferred for six months.
The instructions include what the agencies said was a new exemption from the requirement for maintaining employees for borrowers “who have made a good-faith, written offer to rehire workers that was declined.” Some businesses have complained it was difficult rehiring laid-off workers who were earning more in unemployment benefits.
The application also provides the option for borrowers to use an alternative method for calculating payroll costs if their loan disbursement was in the middle of a pay period, and it makes clear that expenses either paid or incurred during the eight-week period can be forgiven.
More than 4.4 million PPP loans worth more than $537 billion have been approved so far since the program began on April 3.
Restaurants and other small businesses have complained that a rule issued by the SBA and Treasury requiring 75% of the proceeds must be spent on payroll is unreasonable because they need more money for expenses -- and they don’t want to rehire workers only to lay them off.
A report issued May 8 by the SBA inspector general said that based on a review of data from the first round of PPP financing, “tens of thousands of borrowers” would not meet the 75% payroll cost threshold and would have to repay part of their loans.
“More and more small businesses that need capital to reopen say that the 75% payroll forgiveness requirement simply doesn’t work,” said Tom Sullivan, vice president of small business policy for the U.S. Chamber of Commerce.
Treasury Secretary Steven Mnuchin has said the rule reflects the intent of Congress to keep workers on payrolls. But he indicated on Monday he’d be open to “technical” revisions if both parties in Congress agree, especially for restaurants that are only now reopening.
Senator Marco Rubio, a Florida Republican and chairman of the Senate Committee on Small Business and Entrepreneurship and one of the program’s architects, said bipartisan legislation was needed.
The $3 trillion Democratic stimulus bill passed by the House on Friday night would make many of the sought-after PPP changes, but Republicans say it’s dead on arrival.
“Ultimately, we’re going to have to pass legislative language that provides more flexibility to account for what the crisis looks like now to make sure that we don’t have a bunch of companies sitting on money for payroll that can never be spent and has to be given back,” Rubio said in a video posted Wednesday on Twitter.
Lenders wanted more guidance because they make the initial assessment about loan forgiveness and can start asking SBA to reimburse them for that amount starting seven weeks after loans are disbursed, said Paul Merski of the Independent Community Bankers of America. The application issued Friday will be helpful but is still complicated, he said.
“It’s not going to be easy,” he said. “It’s like preparing a tax return.”
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