Will Congress offer small business who received Paycheck Protection Program loans a second chance at funding after the current program expires June 30?
That was the central theme of a Senate Small Business and Entrepreneurship Committee hearing June 10 with Treasury Secretary Steven Mnuchin and Small Business Administration Administrator Jovita Carranza.
Mnuchin was asked by senators on both sides of the aisle about the possibility of another PPP loan for businesses which already accessed the program, and appeared willing to explore the idea. Hours later, however, another White House official appeared hesitant to discuss the possibility.
In the hearing, Sen. Tim Scott (R-S.C.) asked Mnuchin whether there was an appetite for a second bite at the PPP apple.
“I definitely think we are going to need another bipartisan legislation to put more money into the economy,” Mnuchin said. “I think, as we’ve said, we don’t want to rush into that, because we want to be both careful at this point in seeing how the money is in the economy. A lot of the money is still not in it. And two, I think we need to be much more targeted at this point.
“Whatever we do going forward needs to be much more targeted, particularly to the industries and small businesses that are having the most difficulty in reopening as a result of COVID-19.”
Sen. Jeanne Shaheen (D-N.H.), who is working on legislation with Sens. Ben Cardin (D-Md.) and Chris Coons (D-Del.) on a potential second PPP loan for businesses, followed Scott by questioning Mnuchin about how to target such potential legislation.
“We are 100 percent committed to making sure that people who have lost their jobs get back to work, and people that have their jobs can keep their jobs,” Mnuchin said. “There’s no question that small businesses in many industries are going to need more help. Whether it’s through the PPP or others or tax credits, we’re open-minded. But we absolutely believe small business, and by the way many big businesses, in certain industries are absolutely going to need more help.”
Where might those be? Mnuchin later said industries such as travel, leisure, hotels and restaurants likely will need the most help.
“I am especially sympathetic to the restaurants,” Mnuchin said in response to a later question from Sen. Susan Collins (R-Maine). “I think that restaurants and hotels, in particular, do need more help.”
However, hours after the hearing wrapped up, National Economic Council Director Larry Kudlow seemed to shy away from the prospect of a second PPP loan for businesses.
Kudlow was asked twice whether there was a possibility of expanding PPP to allow businesses to get another loan. “Loan demand seems to have peaked around $500 billion,” Kudlow said, and he did not answer the question of expanding the program.
Two other pieces of news came out of the hearing, the first that the agencies are working on making PPP forgiveness easier – a move which trade associations pushed for leading into the hearing.
Responding to a question from Sen. Jim Risch (R-Idaho), Mnuchin teased work on a new form and guidance to make the forgiveness process easier.
“As a result of the safe harbor that’s in the new bill, we’ll be writing new guidance and new forms, which will make it substantially easier for people to check the safe harbor,” Mnuchin said.
Later, Sen. Cory Booker (D-N.J.) asked about the ability for criminals to access PPP funding, and specifically called out those in pre-trial diversion programs – whose records would be vacated after fulfilling mandates, but who are unable to get PPP loans because they are considered recent criminals.
Mnuchin said he was unaware of the issue.
“I’ll work with the administrator and if that’s the case we’ll make that fix immediately,” Mnuchin said, much to Booker’s relief.
Finally, Mnuchin was asked later about the ability to provide names and amounts of funds businesses have received in PPP, and he said the agencies had determined those details were proprietary and would not be disclosed. Mnuchin said, especially for sole proprietorships, those details would be confidential business information.
Heading into the hearing, trade associations staked out positions on PPP forgiveness to influence Treasury and SBA to provide flexibility to lenders and borrowers.
The Independent Community Bankers of America (ICBA) said in a letter to the agencies that an unnecessarily complex forgiveness process compromised the PPP’s potential to facilitate a strong economic and jobs recovery.
“Borrowers should not have to hire accountants at expensive fees to assist with loan forgiveness,” ICBA President and CEO Rebeca Romero Rainey wrote. “What’s more, borrowers whose first language is not English are struggling with the complex forgiveness forms and procedures and would greatly benefit from simplification.”
Among the moves ICBA called for in the letter are:
- A shorter and simpler application form akin to the IRS Form 1040EZ.
- An online PPP loan-forgiveness calculator for borrowers and lenders.
- A forgiveness presumption of compliance for borrower-certified loans of $1 million or less.
- SBA to purchase residual PPP loans at par to support additional lending.
- Preserving the tax deduction for business expenses for PPP borrowers.
The National Association of Financially-Insured Credit Unions wrote that even with the success of PPP, “there remains some issues we believe need to be addressed.”
Specifically, NAFCU asked SBA to clarify whether the lowered requirement that 60 percent of a borrower’s loan proceeds be used for payroll costs applies to all loans whose forgiveness applications have not yet been approved or only loans approved after June 5, 2020.
“Moreover, the SBA’s guidance should cover whether borrowers who have already applied for forgiveness may reapply given this amendment,” the letter stated. “This clarification is critical for those borrowers who obtained a PPP loan on April 3, 2020 when the program began and have already applied for loan forgiveness upon the expiration of the previous eight-week covered period.”
NAFCU said it hoped that Congress would institute proposed clarifications to the hold-harmless provisions for lenders. The association also urged agencies to simplify the forgiveness process for smaller loans.
“The complexity of the forgiveness rules and application is posing challenges for many small businesses who may not have the staff or expertise for such a complex application, especially with the current economic challenges,” the letter stated. “NAFCU members report making PPP loans in amounts much lower than the national average of both rounds of funding. As such, NAFCU is supportive of automatic loan forgiveness for PPP loans under a $150,000 threshold. Loans under $150,000 account for 85 percent of PPP recipients but only account for 26 percent of the funds disbursed by the SBA.
“This level would cover the majority of credit union loans, the vast majority of which have been to smaller businesses that could most benefit from this automatic forgiveness. A smaller PPP loan is less likely to pose a high risk of fraud so the benefits to small businesses and lenders of providing this automatic forgiveness significantly outweigh the potential risks. Moreover, automatic forgiveness frees up human capital at a time when credit unions and small businesses may be short-staffed due to ramifications of COVID-19.”
That level is the level the Consumer Bankers Association (CBA) and Bank Policy Institute wrote to legislators about last week, and CBA re-upped its argument in a letter before the Senate hearing.
“The recently released forgiveness guidance from SBA and Treasury will make the forgiveness process unnecessarily burdensome for many businesses, particularly the smallest of small businesses without the administrative support needed to complete the form,” CBA President and CEO Richard Hunt said. “Small businesses and their employees are the backbone of our nation’s economy and communities. Their time and resources would be better focused on getting the economy safely back up and running, not processing overly complicated documentation that was not required by legislation and released late in the PPP loan process.”