Fixing the PPP to Make It Work Better for Small Businesses and Workers

The Paycheck Protection Program got off to a choppy start, but for those small businesses that have been approved for and received loans, the funds have provided relief and hope during the COVID-19 crisis. As the program has continued into its second tranche, smaller businesses and Main Street enterprises are getting a larger share of PPP resources. According to the Small Business Administration, the average loan size is approximately $73,000, which demonstrates that PPP is reaching true small businesses.

Still, PPP needs to be updated and fixed to align with changing economic and business conditions on the ground. Many more small businesses want to tap the program for help, but some of rules are too restrictive or ill-fit for certain industries or businesses in hard-hit areas of the country where economic “reopenings” will be a much slower process.

The capital provided by PPP needs to be deployed in a way that is the most effective for as many small businesses as possible, which will ensure that as many jobs as possible are saved or available once the most challenging part of the crisis is behind us.

Extend the June 30 “covered period.” The painful and cascading effect of COVID-19’s stay-at-home orders and business closures was swift and unexpected. PPP was drafted and advanced during the early stages of the federal government’s response, and conditions deteriorated with each passing day.

It is not the fault of PPP’s drafters that certain deadlines – in this case the June 30 “covered period” – was put into the legislation. Most of us believed that the virus and its effects would be short-lived. Many states have extended their stay-at-home orders and business closures, which means the road to economic recovery will be longer, slower and different for each state. Therefore, the covered period for the program, which ends on June 30, must be extended — ideally to Dec. 31, 2020. Extending the deadline means small businesses will be able to on-ramp employees after June 30 (to be eligible for loan forgiveness) and at a pace that aligns with demand.

Provide flexibility in the eight-week window. Once PPP money hits the bank account of a small business, an eight-week shot clock for loan forgiveness begins. That means small businesses must immediately bring employees back after receiving their loan (in order to receive forgiveness) even if this does not make sense from a business perspective, or weak revenues during this period cannot sustain payroll for the longer term. Congress must allow small businesses more flexibility in this loan forgiveness window, and by expanding it to a 24-week period.

Change the arbitrary 75-25 rule. This rule, created and published by U.S. Treasury and SBA, caps non-payroll expenses at 25% of the total forgivable PPP loan. When published, it was an unexpected and very disappointing development to small business owners, as the 75-25 split is nowhere to be found in the CARES Act legislation. The ratio is inappropriate for many types of Main Street businesses, the self-employed, businesses in high-cost (high-rent) areas of the country and firms whose largest expenses are rent, utilities and other essential costs of keeping a business open.

On May 8, the SBA’s inspector general released a “flash report” regarding the agency’s implementation of PPP. While the report found that SBA largely complied with the CARES Act in carrying out program, the IG specifically noted that the arbitrary 25 percent cap on non-payroll costs “does not align” with the CARES Act.

PPP’s intention during the course of its development was to save small businesses and small-business jobs. Therefore small business owners must have the flexibility (within reason) to use PPP funds to accomplish both. Limiting forgivable expenses on the non-payroll side works against the intent of saving small businesses and protecting paychecks, which means our economy will be much weaker once states and localities re-open more widely. Following the IG’s report release, Treasury Secretary Steven Mnuchin said he was open to making changes. The 75-25 rule change must happen rapidly, and small business owners across industries must have as much flexibility and clarity as possible.

Expanding what is forgivable in non-payroll, essential expenses. There are other essential expenses incurred by small businesses that need to be forgivable under PPP. A glaring omission is the cost of technology that is allowing small businesses to stay operational during the COVID-19 shut-down period. Many small businesses are relying on and expanding their digital infrastructure, footprint and tools, and are stretching their use of digital platforms, business software and cloud services in order to enable work-from-home arrangements, expand or shift to e-commerce, process payroll and more. Expenses related to these functions, along with software leasing and licensing, make sense to include as essential. Congress and the SBA need to clarify that these expenses are essential for business operations, and therefore forgivable under PPP.

Entrepreneurs are working hard to grind it out and are doing everything possible to salvage their businesses. Making these needed PPP fixes will improve the chance of survival for the small businesses that have received PPP capital, and salvaging the small business jobs that are critical to local economies.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

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