President Trump Signs Paycheck Protection Program Flexibility Act
On May 27, 2020, the House passed the Paycheck Protection Program Flexibility Act by 417-1, the Senate approved it by unanimous consent on June 3, and President Trump signed the bill into law this afternoon.
The bill seeks to address many concerns expressed by the small business community with regards to the Paycheck Protection Program. Congress established the Paycheck Protection Program to provide relief to small businesses during the COVID-19 pandemic as part of the $2 trillion CARES Act. The legislation authorized the Department of Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
The Paycheck Protection Flexibility Act contains the following changes and provisions to the Paycheck Protection Program:
- Current Paycheck Protection Program borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New Paycheck Protection Program borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30. However, the congressional intent is that this extension does not pertain to the issuance of Paycheck Protection Program loans after June 30, 2020, and that this date remains firm in accordance with section 1102(b) of the CARES Act. Representative Chip Roy (R-TX), who co-sponsored the bill in the House, said that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio (R-FL) and Susan Collins (R-ME) indicated that technical tweaks could be made to the bill to restore the sliding scale.
- The intent of Paycheck Protection Program was to keep the same number of employees on the payroll as was used to calculate the loan, and it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer. The Paycheck Protection Program Flexibility Act makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced head count. The law states a business can still receive forgiveness on payroll amounts if it:
- Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
- Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
- Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
- New borrowers now have five years to repay the loan instead of two. Existing Paycheck Protection Program loans can be extended up to 5 years if the lender and borrower agree (but the interest rate remains at 1%).
- Businesses that took a Paycheck Protection Program loan may choose to delay payment of their payroll taxes, which was prohibited under the CARES Act.
The Paycheck Protection Program Flexibility Act did not address concerns raised regarding Small Business Administration audits of loans. According to the Treasury Paycheck Protection Program Loans FAQs, the Small Business Administration may audit any loan at its discretion to determine if “the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.” This includes loans under $2 million. The Small Business Administration may look at how a business calculated the original loan amount and review whether it had “access to credit elsewhere” when determining if all or a portion of the loan should be forgiven. The full text of the Paycheck Protection Program Flexibility Act can be read HERE.
Fighting Homelessness, Senators Highlight Concerns with Emergency Solutions Grant Program
Senators Lisa Murkowski (R-AK), Joe Manchin (D-WV), Dan Sullivan (R-AK) and Kyrsten Sinema (D-AZ) sent a letter to Senate Leaders Mitch McConnell (R-KY) and Chuck Schumer (D-NY), as well as to the Chair and Ranking Member of the Senate Appropriations Committee, Richard Shelby (R-AL) and Pat Leahy (D-VT), to include provisions to support children, youth, and families experiencing crisis and homelessness in the next supplemental package of legislation to address the ongoing COVID-19 emergency. The letter requests dedicated funding to meet the unique and complex needs of homeless youth and families through the programs and systems that are best positioned to help them immediately. The letter described how many families and youth experiencing homelessness currently are not eligible for many of the services provided by the Emergency Solutions Grant program. For example, shelters and transitional housing are often full, unable to serve families as a unit, do not accept unaccompanied minor youth, or simply do not exist in too many communities. In rural communities, where there are less shelters and resources, homelessness remains prevalent and is seen in many forms, including in overcrowded housing or invisible ‘couch-surfing’ circumstances. The Senators proposed a new emergency program, ‘the Family Stabilization Fund’ to bolster the existing infrastructure of direct-service providers working to provide comprehensive services. The full letter to Senate Leadership can be read HERE.
House Financial Services Holds Hearing on Promoting CDFIs and MDIs
On June 3, the House Financial Services Subcommittee on Consumer Protection and Financial Institutions held a hearing on promoting inclusive lending during the pandemic by community development financial institutions, minority depository institutions, and other community banks. The hearing, Promoting Inclusive Lending During the Pandemic: Community Development Financial Institutions and Minority Depository Institutions, included testimony from the Independent Community Bankers of America Minority Bank Council Vice Chairman James Sills, who estimated that his bank’s nearly $13 million in Paycheck Protection Program loans helped preserve some 1,200 jobs in the communities it serves. Other witnesses also expressed support for House-passed provisions that provide small-business borrowers more time to spend Paycheck Protection Program funds and reduce the percentage of funds that must be spent on payroll costs. Witnesses mentioned several few additional changes to the Paycheck Protection Program that need to be made, including:
- Allowing a presumption of compliance for loans of $1 million or less with borrower certification.
- Providing a straightforward approach to loan forgiveness, including a loan-forgiveness calculator.
- Creating a streamlined form for self-employed borrowers and independent contractors.
Citing the success of dedicating Paycheck Protection Program funding for community bank lending, panelist also expressed support for the Small Business Administration’s move to set aside an additional $10 billion for Community Development Financial Institutions and House Financial Services Committee Chairwoman Maxine Waters’ (D-CA) call to set aside an additional $10 billion for Minority Depository Institutions. To view the full subcommittee hearing, click HERE.