Treasury Secretary Steven Mnuchin hinted Friday at potential changes to a forgivable loan program that’s been a lifeline for small businesses hurt by COVID-19.
Mnuchin told the House Small Business Committee that the next round of coronavirus relief legislation, which the Senate is expected to begin negotiating in earnest next week, should amend the Paycheck Protection Program, or PPP, to allow the hardest hit companies to apply for a second loan.
Congress created the PPP as part of March’s $2 trillion economic rescue package. The program allows small businesses to apply for forgivable loans to help them cover payroll during the economic slowdown caused by COVID-19. Borrowers who use the money mostly to pay workers won’t need to pay the loans back. The Small Business Administration started accepting applications a week after the law passed, and has since approved nearly 5 million loans worth $518 billion.
That still leaves around $130 billion available for new loans. One of the program's lead architects, Senate Small Business and Entrepreneurship Chairman Marco Rubio of Florida has said he wants the next coronavirus relief package to repurpose that money for another round of PPP loans. Businesses that have seen larger revenue declines would be allowed to apply for a larger forgivable loan, which could be used more broadly than current PPP loans.
Mnuchin, who was the White House’s lead negotiator for the March law, reiterated his support for those tweaks on Friday.
“Next phase relief should extend the PPP, but on a more targeted basis for smaller companies, and those that are especially hard hit, such as restaurants, hotels and other travel and hospitality businesses,” he said, later emphasizing that eligibility should cover all businesses that have had “significant revenue declines,” rather than targeting specific industries.
Mnuchin also expressed support for ideas contained in a bill from Democratic Sen. Michael Bennet of Colorado and Republican Sen. Todd Young of Indiana that would take the PPP and allow businesses that have seen their revenues decline by at least a quarter apply for 6-months’ worth of fixed operating costs and payroll.
Hard hit black and Hispanic businesses
The coronavirus has disproportionately devastated Black and Latino communities, who’ve suffered higher infection and hospitalization rates than whites, and their businesses have struggled more, too. A recent report by the National Bureau of Economic Research found that the Black business ownership rate declined by 41 percent and that the Latino ownership rate dropped by 32 percent.
Mnuchin agreed with House Small Business Chairwoman Nydia M. Velázquez of New York that the next PPP legislation should set aside funds for minority businesses.
FiscalNote, parent company of CQ Roll Call, has received a loan under the Paycheck Protection Program.
For weeks, banks, credit unions and small businesses have been pressing lawmakers to simplify the paperwork for PPP borrowers filing to get their loans forgiven. In a bipartisan push last month, Republican Sens. Kevin Cramer of North Dakota and Thom Tillis of North Carolina and Democratic Sens. Bob Menendez of New Jersey and Kyrsten Sinema of Arizona introduced a bill to shorten the loan forgiveness process for companies that borrowed less than $150,000.
Congress back-ended the paperwork requirements on the PPP loans, making the loan applications relatively short and fast to fill out, while relying on more robust forgiveness applications on the tail end to ferret out fraud.
The SBA last week released data on PPP loans above $150,000, revealing data errors and loopholes exploited by larger companies to get more than $10 million, the program’s maximum loan size. Despite attention around the chaotic and rushed application process, lawmakers said the forgiveness process should be made easier.
At the hearing Friday, Velázquez urged Mnuchin and SBA Administrator Jovita Carranza to simplify the forgiveness application.
Simplify loan forgiveness
“One of the top issues we heard from PPP stakeholders is the incomplete and ever-changing guidance. Borrowers testified that they have very little guidance regarding how to spend their loans. So, they could qualify for full forgiveness, and lenders are still reporting the process for seeking forgiveness is unclear and unworkable,” she said. “If forgiveness is the centerpiece of the program, a streamlined efficient process for getting those loans forgiven should be a priority.”
Mnuchin said he was open to giving smaller borrowers a lighter load of paperwork.
“I know one of the things we'll talk about is: Should we just have forgiveness for all the small loans?” Mnuchin said. “I think that's something we should consider.”
He added that there still had to be some modicum of fraud protection, but his statement and support from Velazquez, a liberal Democrat, were expected to hearten industry groups that have been lobbying for easier forgiveness.
The forgiveness application portal still isn’t up but Carranza said it would be available “very, very soon,” with a target date sometime in August.
The SBA’s data release also showed that companies owned or affiliated with lawmakers and administration officials received loans. Velázquez chastised Mnuchin for allowing conflict-of-interest rules to be waived. But Mnuchin countered that Congress declined to include explicit conflict-of-interest requirements in the PPP, like those that were imposed for other lending programs set up in the March law.
“As it relates to the SBA program, Congress could have those same requirements but decided not to do so,” he said.
Velázquez’s response suggests her committee was left out of the talks around the March law.
“We intend to exert our responsibility and our constitutional duty to be at the table. I am the first minority female chairing a committee. And when we are discussing lending programs that are within the jurisdiction of this committee, I will demand for the ranking member and myself to be at the table,” she said. “I insisted that ethic rules should not be waved.”