Restaurants and retail owners struggled with PPP loans. But a fix may be on the way. 

Created: 01 June 2020

Restaurants and retail owners struggled with PPP loans. But a fix may be on the way. 

By Andy Medici – Senior Staff Reporter, Washington Business Journal

May 27, 2020, 1:59pm EDT
Updated May 28, 2020, 2:46pm EDT

Legislation to overhaul the Small Business Administration’s Paycheck Protection Program — and make its numerous provisions friendlier to restaurants and retail shops in particular — passed the House of Representatives Thursday.

The bipartisan Paycheck Protection Flexibility Act, introduced last week by Reps. Chip Roy, R-Texas, and Dean Phillips, D-Minn., would extend the eight-week period under which loan recipients could spend the PPP money while helping fix other details that continue to bedevil small businesses in the hospitality realm. Some of those businesses, which often entail higher overhead costs and lower salaries, have struggled to rehire employees because their operations are still far from resumed or former employees are seeing more income from enhanced unemployment benefits.

A bipartisan group has already introduced a companion bill in the Senate. Its backers include Sens. Tim Kaine, D-Va., Thom Tillis, R-N.C., Debbie Stabenow, D-Mich., Cory Gardner, R-Colo., Angus King, I-Maine, and Steve Daines, R-Mont.

Phillips was bearish on the legislation’s future when he spoke recently to the Business Journals. Even though the legislation passed the House by a 417-1 vote, he said he tries to temper expectations. He said he hopes the Senate picks up its version no later than next week.

“I’ve learned from experience it’s better to underpromise and then deliver than the opposite,” he said. “This is not done until it’s signed into law. We’re only right now on the 35-yard-line.”

Phillips said he had to change some of the original language in the bill in order to see it pass. Originally, he wanted to dispense with the 75% mandated allotment for payroll expenses and allow forgiveness if any number of employees are kept on the payroll. Ultimately, that percentage was dropped to 60% in the final bill.

As passed by the House, the Paycheck Protection Flexibility Act would:

  • Extend the “covered period” under which small businesses can spend the loan proceeds from eight weeks to 24 weeks or until Dec. 31, 2020.

  • Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees or return to the same level of business activity as before the virus.

  • Expand the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest and utilities, to 40% of the total loan. That, again, lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.

  • Allow small businesses to take a PPP loan and also qualify for a separate, recently enacted tax credit to defer payroll taxes, currently prohibited to prevent “double dipping.”

  • Extend the loan terms for any unforgiven portions that need to be repaid from two years to five years, at 1% interest.

  • Give small businesses more time to rehire employees or to obtain forgiveness for the loan if social distancing guidelines and health-related actions from the Centers for Disease Control and Prevention or other agencies prevented the business from operating at the same capacity as it had before March 1.

  • Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

This bill is not Congress’ first attempt to fix aspects of the PPP. The $3 trillion HEROES Act, which passed the House earlier this month, contained a number of PPP fixes not only specific to the hospitality industry, though it likely faces opposition from Senate Republicans.

The Paycheck Protection Flexibility Act has the support of the National Small Business Association, which wrote that it “provides immediate flexibility to weather the storm and prepare for uncertain economic times ahead” in a letter to House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif.

“The Paycheck Protection Program is providing essential capital to millions of small businesses across the country,” Roy said in a May 11 statement upon introducing the bill. “Unfortunately, for many of these business owners, particularly local restaurants, hotels, and those in the hospitality industry, the terms are too inflexible to provide the help they need to weather the economic storm.”

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