Good Morning,
The update today focuses on developments on the federal level regarding assistance for small businesses – including new proposals related to the PPP. The information below is accurate to the best of my understanding as of 6 a.m. on Thursday, May 14.
SBA creates “good faith” safe harbor for businesses with PPP loans under $2 million, extends deadlines for returning PPP funds
As media reports of large, publicly traded companies receiving millions in PPP loans have continued to spark outrage, Treasury announced two weeks ago that it would audit every loan over $2 million, and potentially some smaller loans, to ensure that each business had properly certified its need for the funds. That announcement sparked worries among many smaller businesses that they too could get audited and swept in to the Treasury’s efforts to claw back funds from companies that didn’t need the money. Yesterday, the Treasury announced a new safe harbor for any loan less than $2 million, ensuring that smaller businesses do not need to worry about whether their need certifications could be second-guessed in an audit:
Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Yesterday, the Treasury also further extended the deadline for returning PPP funds to Monday, May 18. Treasury Secretary Mnuchin also signaled this week that he is interested in providing additional flexibility for PPP borrowers with regard to forgiveness, particularly restaurant borrowers. This signal, combined with the text of the proposed HEROES Act, described below, change the calculation about the relative pros and cons of keeping PPP funds versus returning them to preserve eligibility to use the Employee Retention Tax Credit (ERTC) instead. Whereas on Monday it seemed as though a strong argument could be made for returning PPP funds to opt for the ERTC instead, developments this week suggest that holding out for additional forgiveness provisions in the PPP may be more attractive for some businesses, though it is certainly not a clear cut choice, given the remaining uncertainty.
U.S. House introduces HEROES Act with changes to PPP and other support for small businesses
This week the U.S. House of Representatives is expected to pass the HEROES Act. The bill contains a large number of helpful provisions for small businesses, including critical reforms to the structure of the PPP:
Extends the covered period for payroll costs for forgiveness eligibility to 24 weeks (from 8 weeks), and the covered period through December 31, 2020 (from June 30);
Eliminates the 75/25 requirement imposed by Treasury/SBA that limits the amount of non-payroll costs to be included in forgiveness amounts;
Ensures small businesses are still eligible for loan forgiveness if they can certify that they are unable to rehire workers in the prescribed timeframe;
Allows non-profits of any size to be eligible for PPP loans (not subject to 500 employee limit);
Makes 501(c)(6) organizations (like chambers of commerce) eligible for PPP;
Clarifies that loan terms extend through the end of the covered period;
Establishes a minimum maturity on PPP loans of 5 years to enable borrowers to amortize loans over a longer period of time, which lowers monthly payments;
Targets the smallest businesses by reserving 25% of remaining PPP funds for businesses with 10 or fewer employees.
Clarifies coordination between the Employee Retention Tax Credit and the PPP loans to ensure borrowers can take advantage of both types of assistance; and
Increases transparency and accountability by requiring SBA to report daily and weekly on PPP loans to provide transparency on who is getting loans, including by ethnicity and gender.
The bill also includes other provisions relevant to small businesses:
Provides an additional $10 billion for SBA disaster loans (EIDL) to resume grants and loans to non-agricultural small businesses (SBA is currently restricting applications only to farmers);
Ensures the principal and interest loan assistance is not treated as taxable income to small business borrowers;
Provides a temporary moratorium on small business and nonprofit debt collection during the crisis and for 120 days thereafter, and reasonable forbearance and repayment options for small businesses and nonprofit organizations when payments resume following the debt collection moratorium;
Authorizes SBA flexibility in Deferral of Payments of 7(a) Loans;
Makes SCORE and Veteran Business Outreach Centers (VBOCs) eligible for SBA technical assistance funding under the CARES Act; and
Allows legal cannabis businesses access to financial services (SAFE Banking Act)
It is important to note that at the moment the bill is expected to pass along party lines with only Democratic support. That means that the HEROES Act, as currently written, is unlikely to pass in the Republican-controlled Senate. Senate Majority Leader Mitch McConnell has indicated that he sees “no urgency” to pass another federal relief bill. The Senate will likely wait until after Memorial Day before even considering any such legislation. Nonetheless, the provisions of the HEROES Act, particularly as the relate to PPP reforms, may prove critical in framing the terms of the negotiations that will continue over the coming weeks. There does seem to be a growing bipartisan consensus regarding needed changes to the PPP. Treasury Secretary Mnuchin stated this week that he is open to bipartisan changes to the PPP’s forgiveness terms, particularly for restaurants.
***
Yesterday, I wrote on a post on social media about where I think we are right now:
You know how right when someone finds out they are sick or right after a new baby is born, the well wishes and free meals and offers to help pour in? But then after a few weeks the momentum and enthusiasm is lost, even though the third month of the illness or the baby rearing might actually be harder than the first few days?
Local businesses are in the third month of this illness. Don’t lose the momentum to support them. Keep buying take-out and curbside and online. Local businesses need your support now even more than they did in the first few days of the crisis.
Particularly as some businesses are given the green light to open while others are not, the momentum to support curbside, take-out, and online orders may start to wane. I’m hopeful that we can collectively remind our communities not to let that happen.
Be well and order from a local business.
With love,
Heather
P.S. I can be reached at heather.sanborn@legislature.maine.gov.
P.P.S. You can subscribe to these updates at heathersanborn.substack.com.
Dear Senator Sanborn, Thank You very much for the update! In these troubled times which engender significant changes to, what was, a well established norms information that you provide in the updates give people what might be needed to develop proper perspective. Thank You again!