Changes to PPP loans add flexibility for small business owners

WASHINGTON, D.C. — President Donal Trump has signed a bill that will reform the Paycheck Protection Program (PPP) to give small businesses added flexibility regarding how they can spend money awarded through the program.

The U.S. House of Representatives and U.S. Senate approved a series of changes the week of June 1 to the PPP, a program that has pumped hundreds of billions of dollars into the economy through the use of forgivable loans to small businesses. Mr. Trump signed the reform bill in to law June 5.

The Specialty Equipment Market Association (SEMA) and the Tire Industry Association ((TIA) are two of dozens of trade groups that have called for PPP reform as the impact of COVID-19 continues across the nation.

"So the PPP program was based on eight weeks to go ahead and pay your employees, be able to get the government to absorb those costs, including rent and other costs," Stuart Gosswein, senior director of federal government affairs at SEMA, said.

"It's obvious that stay-at-home and reopening is taking longer. We need to make adjustments to the PPP program. We have been urging Congress to quickly make those adjustments," Mr. Gosswein said just before the Senate approved changes.

PPP has provided more than $500 billion of federal dollars to help cover payroll and other costs.

The money has come in two separate waves, but original rules are sometimes at odds with circumstances surrounding SEMA members, Mr. Gosswein said. That put small businesses in danger of having to pay back the loans at a time when they are struggling to survive.

Key changes to PPP include extending the period of time businesses can use their PPP funding from eight to 24 weeks and loosen the percentage restrictions on how the money can be spent.

Current rules require that 75% of the cash be spent on payroll, but now that drops to 60%.

Some businesses are finding it difficult to spend all 75% of the amount on payroll when their operations are impacted by shutdown orders, depending on their location and business type, Mr. Gosswein explained.

At TIA, CEO Roy Littlefield IV said the phones were very busy when PPP first started as members had plenty of questions about the program, but there's not been much feedback recently.

"We are not hearing a lot. That typically means there's a lot of satisfaction out there. We've had some people call and say they got the loan, it's keeping them alive, things like that," he said. "The more concern, or the more questions that are out there, is when we get the bulk of the calls."

The impact of COVID-19 also means that people are not in the association's office every day to take calls, so some members who might reach out during those times decide not to leave a message, Mr. Littlefield explained.

"I think, in general, the attitude is positive on it, and it's made a huge difference," he said. "We're just not getting an overwhelming number of calls, which is usually the case when things are going positively.

"Usually, we're inundated with calls when there are concerns or issues."

A total of $510.4 billion of PPP money had been distributed through about 4.5 million loans as of May 30, according to the U.S. Small Business Administration. That averages out to $113,705 per loan.

Manufacturing is the fourth largest category receiving PPP assistance, with 218,021 loans for a total of $53.5 billion. That represents about 10.5% of the PPP funds distributed as of May 30. Health care and social assistance is the largest category with 470,339 loans valued at a total of $66 billion, the SBA reported.

While the first round of $349 billion in PPP funding was quickly exhausted, about $150 billion still remained from the second round of an additional $310 billion.

Some potential borrowers were hesitant to apply because of their concern with the original rules surrounding use of the funds, Gosswein said.

The House initially passed changes to PPP, leaving the measure needing Senate approval, which came June 3. There was some opposition to the bill by Sen. Ron Johnson (R-Wis.) regarding how long the program in its current form should stay in place, but he subsequently allowed it to go through.

"My only objection is we should not extend this authorization without significant reforms that I hope my colleagues would all agree with," Johnson said on the Senate floor.