Legislative changes may be on the way for PPP
Bipartisan bill on tax deductions for forgiven PPP loans among several proposed legislative changes
While the U.S. Congress considers another round of coronavirus-related small business relief, national and state lawmakers are talking about making substantive changes in future phases.
Lenders have already originated more than $500 billion of the $670 billion available in the first two rounds of the Paycheck Protection Program (PPP), the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s signature small business aid package. The PPP aims to provide funding to small businesses, giving them SBA-backed loans that the federal government would ultimately forgive if they keep employees on the payroll for eight weeks.
The program, which has seen massive demand since its April 3 launch, has enjoyed bipartisan support. The initial $350 billion of funding was exhausted on April 16, and Congress then approved another $320 billion, which allowed the SBA to resume approving applications on April 27.
Looking ahead, federal and state lawmakers are mulling changes to the program as employers say the program’s rules are too stringent to help them stay afloat through the pandemic and keep their workers on the payroll.
An overview of the changes currently under consideration:
Bipartisan efforts on Capitol Hill look at PPP loan expense deductibility
A bipartisan group of lawmakers is considering wide-ranging changes to the next PPP phase. Among the key proposals now making the circuit in the House and Senate: lengthening the time that small businesses can spend the money; allowing them to use less of the aid on trying to retain employees and more for expenses like rent; and expanding the relief to larger companies.
Senate Finance Committee Chairman Chuck Grassley (R-IA) and ranking member Ron Wyden (D-OR) led a group that introduced legislation May 6 that would also enable small businesses to deduct their expenses even if they have received a PPP loan that was later forgiven.
The proposed Small Business Expense Protection Act, penned with Sens. John Cornyn (T-TX), Marco Rubio (R-FL), and Tom Carper (D-DE), would clarify the PPP so small businesses could still deduct from income, the expenses they have paid with a forgiven PPP loan proceeds. Under the bill, the receipt and forgiveness of coronavirus assistance through the PPP would not affect the deductibility of ordinary business expenses.
The proposed legislation has won support from the American Institute of Certified Public Accountants (AICPA), which said it will “ensure that small business taxpayers affected by the ongoing pandemic will receive the full intended benefits of the CARES Act.”
Important note: The Internal Revenue Service (IRS) has previously released guidance on PPP loans and the deductibility of expenses. The IRS’ guidance should be viewed as authoritative unless and until additional direction is received from the IRS or Congress.
The States Weigh In
Additionally, 24 state attorneys general, including Pennsylvania Attorney General Josh Shapiro, released a letter May 6 asking top federal lawmakers to revamp the PPP. The state lawmakers say the program’s rollout has “exposed a variety of shortcomings,” that they say include loans being made to large, publicly traded companies that have access to other funding sources “at the expense of small businesses in desperate need of capital.” They also say lenders were given “insufficient guidance,” and propose that publicly traded companies “with access to alternative funding sources” be explicitly prohibited from applying.
PPP loan terms up for review
Federal policymakers are looking at updating the PPP to resolve complaints that the terms for converting the government-backed loans into grants are too restrictive and out of touch with the realities of operating businesses in the coronavirus era.
Restaurants and other businesses have said the PPP requirement to use the money within eight weeks after receiving the loan isn’t practical and that the mandate to spend at least 75 percent on payroll is too high a hurdle — especially when Congress made unemployment benefits more appealing to many workers.
And even more changes are in play: It's looking increasingly likely that lawmakers will try to revamp the program for businesses that have already received loans and for those that try to seek the aid in the future. Among the ideas under consideration is a proposal from Sen. Michael Bennet (D-CO) and Sen. Todd Young (R-IND.) that would give businesses 2X the amount of time to spend the loan money — 16 weeks instead of eight — if they can show they suffered a 25 percent revenue loss during the period they're supposed to spend PPP funds.
They're also proposing a whole new program that would expand the availability of government-backed loans to mid-size firms with up to 5,000 employees — up from 500 under current rules — while making the terms more flexible and linking any possible loan forgiveness to revenue declines.
Questions re: loan forgiveness guidance
For all businesses contemplating how to have their loans forgiven, the lack of detailed guidelines from the SBA and the Treasury Department on what to do next is a major issue. The forgiveness aspect of the loans — which turns them into grants in practice — was one of the key selling points in convincing businesses to take on the debt in exchange for keeping workers on their payroll.
The SBA has yet to release comprehensive steps on how businesses should complete the process. Lenders responsible for distributing the loans are also seeking more information on how forgiveness will work because they will serve as the go-between for businesses and the SBA.
While they review the existing SBA and Treasury guidelines, some business owners are asking for more flexibility in how they spend the money. The National Federation of Independent Business, the National Restaurant Association, the Independent Restaurant Coalition, and the AICPA have all asked Congress and the SBA to ease loan forgiveness requirements.
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