House Passes Fix for Paycheck Protection Program
Congressman Seth Moulton (D-MA)
WASHINGTON — Yesterday, Representative Seth Moulton (D-MA) voted in favor of a bill to fix issues with the Paycheck Protection Program that will help small businesses use the loans and have them forgiven more easily. The House passed the bill.
“The 40 million Americans who are out of work right now need jobs to come back to once we get going again. Small businesses drive our economy, and it was clear early on that the PPP program wasn’t working as designed. I’m glad this got fixed,” Moulton said. “It was shortsighted to place an arbitrary 25 percent cap on how much of a PPP loan a business owner can spend on rent and utilities, especially at places like restaurants or barber shops. Errors like this happen when major policy is written quickly by a small number of people behind closed doors. We get better policy when bills are debated before committees and in the public eye. In the case of the CARES Act, the urgency of the moment demanded something quick, and that might require similar fixes down the road. At the end of the day, today’s vote will get us closer to the goal we all share, which is helping people struggling financially because they're out of work, protecting jobs and keeping businesses open. I urge the Senate to come back from recess and pass this as soon as possible.”
The Paycheck Protection Program was created through the CARES Act, one of the major disaster relief bills passed by Congress and signed into law. It provides emergency loans to small business owners that had to close shop in order to meet social distancing requirements. The program was written so that if small businesses met employment and spending requirements like retaining 75 percent of their employees and spending the loans within 8 weeks of receiving them, the Small Business Administration would forgive the loans, essentially converting them to grants.
In reality, even though the policy was intended to maximize the chances that businesses could receive loan forgiveness, the requirements were too strict.
Many businesses will remain closed eight weeks after receiving the loans. Further, many employees can currently make more money collecting unemployment benefits, which the CARES Act increased, than by receiving wages, making it difficult for small business owners to retain employees. This is especially true in the hard-hit service industry where workers at places like restaurants and hair salons make substantial amounts of their incomes in tips rather than wages.
The bill passed today, H.R. 7010 - the PPP Flexibility Act, which was introduced by Rep. Dean Phillips (D-MN), will address those issues. If passed in the Senate and signed into law, the bill will allow small business owners to submit proof that they made good-faith efforts to rehire laid-off workers in an attempt to meet the headcount requirements for forgiveness. If the bill becomes law business owners can still qualify for forgiveness if they fail to meet the rehiring standards as long as they can show proof that a former employee or a similarly-qualified employee declined an offer of employment or if the business can show it was unable to return to pre-pandemic business activity because of new health regulations. This means businesses forced to close or unable to entice people off unemployment would still qualify for financial relief in the form of PPP loan forgiveness.
The bill also changes the PPP program by:
- Allowing forgiveness for expenses beyond the 8-week covered period to 24 weeks and extending the rehiring deadline;
- Increasing the current limitation on non-payroll expenses (such as rent, utility payments and mortgage interest) for loan forgiveness from 25 to 40 percent;.
- Extending the covered period of the program from June 30 to December 31;
For PPP funds that are not forgiven, the bill creates more flexibility for repayment by:
- Extending loan terms from two to five years; and extending deferral on the start of payments for up to 11 months.
- Ensuring full access to payroll tax deferment for businesses that take PPP loans.
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