House Passes Bill to Relax Restrictions on Small Business PPP Loans

The House of Representatives yesterday overwhelmingly passed legislation (417-1) intended to ease restrictions on Paycheck Protection Program (PPP) loans to help small businesses keep workers on payroll with benefits during the coronavirus outbreak.  (The Hill, May 28

  • H.R. 7010 would make other changes that offer greater flexibility for PPP-eligible businesses, including:
    • Extending the loan forgiveness period from eight weeks to 24 weeks after origination;
    • Extending the PPP re-payment period to five years, for small businesses that do not receive loan forgiveness;
    • Allowing PPP loan recipients to take full advantage of deferral of employment taxes through the end of 2020; and
    • Allowing small businesses to receive forgiveness for up to 40% of PPP loan amounts used for rent and other non-payroll expenses.
  • The Roundtable joined a broad coalition of organizations supporting the flexibility bill – as originally introduced – that would have given small businesses greater discretion to decide how to best apportion PPP proceeds to help pay rent obligations and other ordinary operating expenses.  (Roundtable Weekly, May 22)
  • The original bill would have completely eliminated the so-called “75-25 Rule.”  The rule’s name derives from a Small Business Administration (SBA) regulation that currently requires a qualifying business to use at least 75% of PPP proceeds for payroll and benefits, and no more than 25% for rent, mortgage interest, and utility payments.  (See RER’s “8-Point Plan to Reform the PPP”)
  •  H.R. 7010 as passed by the House yesterday defaulted instead to a “60-40 Rule.”  According to Politico, “Democrats scaled back [the] initial version of the bill to address complaints from labor leaders that it would have given businesses less incentive to hire back workers.”  (POLITICO, May 28)
  • With the Senate scheduled to come back in session on Monday, it could vote next week on its own bipartisan legislation to modify the PPP, the Paycheck Protection Program Extension Act (S. 3833).  Like H.R. 7010, the Senate version would increase the PPP forgiveness period – but only by 16 weeks.  The Senate bill would not address changes to the “75-25 Rule” at all.  (Journal of Accountancy, May 25)
  • A bipartisan group of Senators led by John Cornyn (R-TX), meanwhile, is on record to move the “75-25 Rule” to a “50-50 Rule” where up to half of PPP loan proceeds could be used by a business to pay rent and other non-payroll fixed expenses.  (Cornyn press release, May 6)
  • Treasury Secretary Steven Mnuchin has expressed the Administration’s opposition to changing the “75-25 Rule.”  “Let me just remind people it’s called the Paycheck Protection Program, it’s not called the overhead protection program,” Mnuchin said in a May 21 interview for The Hill. “It was designed that you got eight weeks of payroll plus 25 percent for overhead, which we thought was a reasonable amount.”

House Majority Leader Steny Hoyer (D-MD) claimed earlier this week that House and Senate negotiators are nearing agreement on PPP reforms. (Bloomberg, May 26).  A recent “tracker tool” released by the American Action Forum charts the allocation of PPP loans since the program’s inception in March.   

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Senate, House Signal Openness to PPP Reforms as Business Coalitions Urge Policymakers to Strike “75/25 Rule,” Extend Loan Forgiveness Period

SBA image for PPP

Congressional lawmakers are taking steps to improve key terms of the Paycheck Protection Program (PPP) to help small business borrowers deal with the economic impact of the global pandemic.  (Washington Post, May 20 and Wall Street Journal, May 21) 

  • Under the CARES Act, a portion of PPP loans can be forgiven for the eight week period after origination.  (See “CARES Act and Implications for Real Estate”)
  • Implementing rules and guidance from the U.S. Treasury and Small Business Administration further establish a “75/25 Rule,” whereby 75% of PPP loan proceeds and forgiven amounts must be for payroll.  No more than 25% can be devoted to non-payroll business expenses like rent, mortgage interest, and utility bills.
  • Business coalitions (including the The Real Estate Roundtable) sent letters yesterday urging policymakers to take immediate action to modify these requirements by extending the PPP loan forgiveness period and striking the “75/25 Rule.”
  1. A broad business coalition initiated by the U.S. Chamber of Commerce also recommends extension of the PPP’s June 30 safe harbor date for rehiring and restoration of pay.   
  2. A separate letter focuses support for specific legislation, the Paycheck Protection Flexibility Act (H.R. 6886).  This bipartisan bill is a stand-alone “spin-off” of PPP reform provisions passed by House Democrats last week in the HEROES Act.  (Roundtable Weekly, May 15, 2020H.R. 6886 would likewise strike the “75/25 Rule” and extend the PPP forgiveness period to 24 weeks after loan origination.
  • A sponsor of the PP Flexibility Act, Rep. Dean Phillips (D-MN), informed in a press release that House leadership has committed to bring up H.R. 6886 for its own vote possibly as early as next week.  House Speaker Nancy Pelosi (D-CA) reportedly called the 75/25 limitation on small businesses “debilitating.”  (Roll Call, May 20)
  • Over in the Senate, Marco Rubio (R-FL), Chairman of the Senate Small Business Committee and author of the PPP provisions in the CARES Act, predicted in a tweet yesterday that the Senate would pass reforms (S. 3833) to extend the time period beyond the current June 30 deadline by which qualifying small businesses can apply for and use PPP loans.
  • Senator John Cornyn (R-TX), meanwhile, has spearheaded a bipartisan effort to amend the “75/25 Rule” to a “50/50 Rule” – where up to 50% of PPP loan and forgiveness amounts could be used for rent and other ordinary business expenses.  (Cornyn letter, May 5) (Roundtable Weekly, May 8, 2020)
  • Since passage of the CARES Act on March 27, The Roundtable has recommended elimination of the “75/25 Rule” as an inappropriate “one-size-fits-all” restriction that unduly limits businesses in meeting their rent obligations and paying for other ordinary operating expenses.  (RER’s “8-Point Plan to Reform the PPP”) 
  • Treasury Secretary Steven Mnuchin yesterday endorsed congressional efforts regarding extension of the PPP loan forgiveness period.  “One of the things we’re working with Congress on, and there is bipartisan support, is lengthening the eight-week period.  [T]hat’s something we definitely want to fix,” he said. (Advancing America’s Economy forum, May 21)
  • At The Hill’s Advancing America’s Economy forum, Mnuchin also stated he did not support reforming the “75/25 Rule.” “We want most of this money to go to workers and that we believe the 75 percent was exactly consistent with the way the program was designed,” he said.
  • A recent “tracker tool” released by the American Action Forum charts the allocation of PPP loans since the program’s inception in the CARES Act.   

The Paycheck Protection Program will be discussed at The Roundtable’s Remote Annual Business and Committee Meetings from June 11-12. 

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High Demand Depletes Small Business Loan Program as Congress Negotiates More Funding; President Trump Announces “Guidelines to Open Up America Again”

Small Business Administration Report on the Paycheck Protection Program - April 13, 2020

The Small Business Administration (SBA) yesterday announced that the Covid-19 Paycheck Protection Program (PPP) hit its $349 billion limit after successfully processing more than 1.6 million loans since the program launch on April 3.  The PPP – funded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act for small businesses struggling with the economic shocks of the pandemic – was quickly depleted as Congress continued negotiations over how to replenish funding.   (Wall Street Journal, April 16)

  • “The SBA has processed more than 14 years’ worth of loans in less than 14 days. By law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations,” according to a joint statement by the Treasury and SBA.”
  • The urgent need for Congress to move quickly to authorize additional funding for the PPP is detailed in an April 15 letter to policymakers from more than 250 industry and business groups, including The Real Estate Roundtable.   
  • The SBA this week also released its first report on loan approval details since launching the program.  Through April 13, the SBA report shows 49,000 real estate businesses and 115,000 construction businesses were approved for PPP loans.  (SBA PPP Report) See The Wall Street Journal, April 15, “Where the Stimulus Loans for Small Businesses Are Going”)
  • The Roundtable on April 8 also submitted an 8-Point Plan to clarify and improve the Payroll Protection Program (PPP) to policymakers. A coalition letter from national real estate organizations also seeks clarifications and confirmation on real estate businesses’ eligibility for the PPP.  See April 16 letter to the Treasury and SBA. 
  • Updates to the PPP rules and guidance are available via the Treasury Department’s website (April 15 FAQ update here) and the Small Business Administration’s Covid-19 resource webpage.
  • Congressional Republicans this week have emphasized that additional PPP funding should be limited to $250 billion solely for small businesses – while Democrats want to add an additional $100 billion for hospitals, $150 billion for state and local governments and more food assistance funds. (The Hill, April 16)
  • Due to coronavirus health concerns the House and Senate are currently scheduled to return to Washington on May 4.   Until then, both chambers need unanimous support to pass an additional funding package.

Re-Opening the U.S. Economy

  • President Trump yesterday announced “Guidelines to Open Up America Again” that delegates final decisions for states to lift stay at home orders or business restrictions to governors once certain criteria are met.   States would first need to demonstrate their COVID-19 cases are on downward trajectory over a 14-day period, while also establishing a system for testing health care workers before they can proceed to a phased opening.  (Guidelines document and Wall Street Journal, April 16)

President Trump on April 14 also announced the formation of various “Great American Economic Revival Groups” to gain insight on combating the economic impact of the coronavirus from leading business executives representing various economic sectors.  Among the 200 leaders from industry sector groups are 10 members of The Real Estate Roundtable.  (Full list, White House news release and  Bisnow, April 15)

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Roundtable Unveils 8-Point Plan to Improve the PPP; Roundtable Member Discusses Successful PPP Funding

8 Point Plan to Reform the Payroll Protection Program -- The Real Estate Roundtable

The Real Estate Roundtable on April 8 submitted an 8-Point Plan to clarify and improve the Payroll Protection Program (PPP) to congressional leadership, Treasury Secretary Steven Mnuchin and Small Business Administrator (SBA) Jovita Carranza.  (Roundtable Letter and 8-Point Plan)

  • The Roundtable supports the intent of the PPP in the CARES Act, and the efforts to get SBA loans to struggling individuals, families and businesses as soon as possible.
  • The CARES Act passed by Congress and signed by President Trump on March 27 established the PPP to provide financial assistance to “any” business concern that has 500 employees or less, or meets small business size standards used by SBA for its existing loan program.  Larger companies sized-out of the PPP might obtain credit support through the Federal Reserve’s new Main Street Lending Program, and its expanded Term Asset-Backed Loan Facility (TALF). (See story above for more details)
  • The Roundtable’s recommendations detailed in the “8-Point Plan to Reform the PPP” would significantly help avoid potential calamitous economic consequences for small businesses.
  • The letters to Congress, Treasury, and SBA transmitting the 8-Point Plan warn of foreclosures by lenders upon building owners who go into mortgage default because rents are not being paid to cover debt service.  The Roundtable’s plan thus supports use of PPP loans to help businesses pay rents and other operating expenses.
  • The Roundtable letter urges Congress and the Administration’s agencies to enact 8 improvements as swiftly as possible to clarify, streamline and improve the process.
  • Additionally, a coalition including The Roundtable today wrote to Fed Chair Jay Powell, Treasury Secretary Mnuchin and SBA Administrator Carranza to request additional guidance on current business affiliation rules as part of the PPP.  (Coalition affiliation rules letter, April 10)
  • Among its requests, the coalition urges the policymakers to allow small businesses supported by venture capital, angel capital and private equity firm investors to access critical funding that would help retain workers and jobs during the economic fallout of this health crisis.

Since the SBA launched the program last Friday by making borrower  applications available on-line, demand for PPP loans has been intense. Challenges have included a massive influx of traffic that has brought website application sites down, confusion over specific application packages, and the technology used to process loans and approve lenders. (The Hill, April 9 and Wall Street Journal, April 10)

Roundtable Member’s Successful PPP Experience

A successful example this week of PPP funding is profiled in an interview recorded today by Roundtable President and CEO Jeffrey DeBoer with Roundtable member Albert Dwoskin, President and CEO of A.J. Dwoskin & Associates, Inc.   (Watch the interview here)

  • Mr. Dwoskin’s company, facing a sudden halt in rental payments due to the pandemic, immediately sought PPP funding to stabilize its capital needs and retain more than 100 employees.  “The application went in on Tuesday and was funded on Friday. We didn’t expect that,” Dwoskin says in the interview.
  • Dwoskin’s Vice President of Accounting & Finance Natalia Ostroveanu, also details the PPP loan process. “J.P. Morgan had a question as part of their review … because the number of employees on the application was different than what the report from ADP showed.  And once I explained to them the reason for that number, they were okay with it and that was yesterday morning.  Today, this morning, we already received the funds,” Ostroveanu states.

Since the SBA launched the program last Friday by making borrower  applications available on-line, demand for PPP loans has been intense. Challenges have included a massive influx of traffic that has brought website application sites down, confusion over specific application packages, and the technology used to process loans and approve lenders. (The Hill, April 9 and Wall Street Journal, April 10) 

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