Democrats widen eligibility for payroll loans, but add no funds

Bill provides small businesses much more flexibility on how they spend PPP funds

House Democrats on Tuesday offered the fifth bill to provide relief to an economy battered by shutdowns to contain the COVID-19 pandemic. (Tom Williams/CQ Roll Call)
House Democrats on Tuesday offered the fifth bill to provide relief to an economy battered by shutdowns to contain the COVID-19 pandemic. (Tom Williams/CQ Roll Call)
Posted May 12, 2020 at 7:02pm

House Democrats unveiled a $3 trillion spending proposal Tuesday for the next round of coronavirus spending that includes numerous tweaks to the Paycheck Protection Program, but no new money.

The bill would provide small businesses significantly more flexibility on how they spend their PPP funds and remain eligible for loan forgiveness. It would expand PPP eligibility to critical access hospitals, dark money special interest groups, and local news outlets owned by media conglomerates.

Congress created the PPP as part of the roughly $2 trillion economic rescue package passed in March. Building off the Small Business Administration’s existing Section 7(a) loan guaranty program, it allowed small businesses to apply for loans to cover up to 10 weeks of payroll and other fixed costs for an eight-week period.  Loans that are used for payroll and fixed expenses won’t need to be repaid.

The loan applications are handled by private lenders and authorized by the SBA. The idea was to help keep small businesses afloat, and their workers employed, while COVID-19 wreaked havoc on the economy.

The PPP was so popular that it ran out of its $349 billion allocation in two weeks, leading Congress to pass a stopgap spending bill that added $310 billion to its coffers. But demand has cooled for the second round, in part because the SBA revised its rules to block public companies from the program.

In the first round, some larger companies secured funds quickly while mom-and-pop shops struggled, sparking outrage and leading some to return their loans. The SBA usually defines small businesses as those under 500 employees, but the March law specifically allowed some restaurant chains and franchises to participate even if their total workforce was above 500, and was silent on publicly traded firms.

As of Sunday evening, the SBA had approved $188 billion of the second spending tranche.

The Democrats' proposal would leave the SBA's stricter rules blocking public companies in place, but would expand eligibility in other ways. Most dramatically, it would expand eligibility from just charitable organizations as defined by 501(c)(3) of the Internal Revenue Code to all 501(c) non-profit organizations — including so-called dark money political groups that aren't required to disclose their donors under 501(c)(4). Trade association lobbying groups would also qualify for the PPP loans.

The bill would also allow critical access hospitals to receive PPP funds, as well as local news outlets owned by a single media conglomerate by treating each paper or broadcast affiliate separately under the SBA’s affiliation rules.

FiscalNote, parent company of CQ Roll Call, has received a loan under the Paycheck Protection Program.

No more money

Even though the proposal would greatly expand the number of eligible organizations to apply for loans — and extend the deadline to apply from June 30 to the end of the calendar year — it doesn't appropriate additional funds. Borrowers applying must certify that “the uncertainty of current economic conditions makes necessary the loan request to support… ongoing operations.” The Treasury Department has said that firms with access to other sources of capital don't meet this requirement.

Despite its popularity, the program has drawn criticism from certain business sectors, such as independent restaurants and retailers, that the PPP can’t help. The SBA and Treasury Department implemented rules requiring borrowers to use 75 percent of the loans for payroll and just 25 percent for rent, mortgage or utility payments. The interim final rules also placed a short two-year maturity on the loans.

Those rules made the PPP loans less appealing to companies with relatively low employee costs compared to rent or debt expenses. Rent is the biggest cost for many small shops and bars, but using the PPP money primarily for that — or for restocking the fridge for reopening — would require it to be repaid. And a two-year maturity means those businesses would face large monthly debt repayments they couldn't afford.

The Democratic proposal would lengthen the two-year maturity to five years, reducing the size of each individual repayment, and prevent the SBA from putting any ratio requirements on how much of the loans must be used for forgivable purposes. It would also allow businesses to use the PPP money to cover interest on any debts incurred before COVID-19 upended the economy, not just rent, mortgage and utilities.  

The bill would extend the loan’s covered period from eight weeks after it's received to 24 weeks. That would allow businesses to sit on the money longer without reopening, waiting for the stay-at-home orders to be lifted.

While adding flexibility to the programs would make them more appealing to most recipients, it also undermines the original intent of the program, which was to mimic the payroll replacement programs used in countries like Denmark and Germany to keep employees connected to their jobs and off unemployment rolls.

The Democratic proposal makes other tweaks as well. It would earmark 25 percent of the remaining PPP funds to borrowers with 10 or fewer employees, and another 25 percent to nonprofit groups. It would clarify that returned loans can be lent back again, but then also would earmark those returned funds for companies with 10 or fewer workers.

Democrats have complained that the PPP funds have been going to larger small businesses and surveys have shown that minority-owned businesses have received less. To that end, the bill would also beef up the data reporting requirements during the loan forgiveness application process.

Similarly, the bill would direct the SBA to release daily, weekly and periodic reports on the loan program, breaking down the data by geography, demographics, lenders, and including how much lenders and brokers were paid in fees. But the bill would not require the SBA to reveal the names of specific borrowers.

The bill would provide another $10 billion in Economic Injury Disaster Loan grants. The third economic relief law allowed EIDL applicants to get a $10,000 advance.

"The expansion of EIDL and improvements to PPP included in the House Democrats' proposal will give 500,000 small restaurants a better chance of reopening their doors when it's safe to do so, however, more work from Congress is needed to ensure independent restaurants have the resources needed to stay in business," the Independent Restaurant Coalition said in a statement calling for industry specific bailouts.