Small business owners say PPP program needs a tune up

Requirements for small businesses to be forgiven for federal paycheck protection loans are at the center of lobbying efforts to revise the program’s guidelines by industry leaders who say the aid package fails to address sector-specific challenges of the coronavirus recession.

The Paycheck Protection Program (PPP) provides small businesses a loan that can be forgiven if they use it to keep employees on their payrolls for eight weeks until the economy rebounds and they can return to work. But industry leaders say the restrictions on how employers can use PPP money could make it so there’s no work to which employees can return.

Officials from the Small Business Administration (SBA), the federal agency responsible for overseeing the program, say the loan can be 100% forgiven as long as borrowers use the money under specific requirements, many of which weren’t finalized until after the program began accepting applications.

The SBA is requiring borrowers to use at least 75% on payroll costs and no more than 25% for certain overhead expenses. The money needs to be deployed for rehiring full-time equivalent employees over the course of eight weeks following loan disbursal, whether or not they’ve been deemed “life-sustaining” by state officials and can conduct in-person business operations.

A reduction in full-time equivalent employees or payment below pre-pandemic levels at the end of eight weeks would result in the same percent reduction in how much of the loan is forgiven. Unforgiven loan funds would have to be paid back with a low-interest loan term — a 1% rate over the course of 24 months.

Small business and industry trade groups, such as the National Federation of Independent Business (NFIB) and the Pennsylvania Restaurant and Lodging Association (PRLA), are pushing for an easing of restriction on how employers can use fully-forgiven PPP loan funds.

According to letters submitted to Washington D.C. policymakers and Congress this past week, NFIB and PRLA officials are asking policymakers to extend the eight-week window to give companies more time to spend PPP money and still be forgiven. They are also asking lawmakers to alter the 75%-25% ratio of forgivable payroll to overhead expenses, respectively, that can be used with PPP loan money.

“We are going to continue to press for these items,” said NFIB Pennsylvania State Director Gordon Denlinger said in an interview last week.

Ben Fileccia, director of operations and strategy for the PRLA, said it’s going to be a while before the public feels comfortable returning to restaurants after a public health crisis. Fileccia said a recent National Restaurant Association poll shows some 2% of restaurants across the U.S. say they won’t be able to open after the crisis.

“Everything is going to ramp up but it’s going to take some time,” Fileccia said. “Eight weeks is not going to be a solution.”

More time needed

Forgiveness requirements will disadvantage businesses forced to cease operations if they can’t use the money to transition to normal operations after eight weeks, said Drake Nicholas, a partner with the Lancaster-based legal firm Barley Snyder. Shuttered PPP borrowers should have the option to use the loan money for payroll expenses once in-person operations can resume and employees can come back to work.

“If it’s shut down for two to three months, it’s not like a business is ready on day one to ramp up,” Nicholas said. “It puts that particular business at a disadvantage because once they’re able to reopen again, they’re probably going to have to draw on other lines of credit or other resources to start up again, where they could have used these [PPP] resources to support their payroll to get them ramped up again.”

Most member businesses surveyed by the NFIB said it will take longer than eight weeks for them to financially recover from the coronavirus-induced economic recession. The survey, conducted after lenders stopped taking PPP applications on April 16, showed 63% of respondents believed recovery will take them into next year.

Only half of small-business PPP borrowers who responded to the survey said they expect to have their loan be fully-forgiven. About 27% said they expect to have at least 75% forgiven, and 3% said they plan to use more than half as a loan.

But that’s not how the program is meant to be used, said SBA Eastern District Spokesperson Sonia Smith. The program was designed for employees to bring workers back onto payroll regardless of whether or not social distancing orders allow the business to resume operations.

“Some businesses might be able to recall their employees, and they may be able to work,” she said. “There are other businesses where you might just be paying [the worker] to sit at home. That is the intent of the program — to bring employees back onto the payroll.”

Nicholas said it is important employees receive wages while mandatory closures are in effect, but employers should have the option to use a greater share of PPP money to support revamping business operations.

“Some would argue that wasn’t what the law was intended, that it was intended to get employees back on the payroll as soon as possible,” he said. “I don’t see how you could take that position and say this program supports small business.”