New PPP Directives: Extending Funds for Small Businesses with Oversight
May 7, 2020
May 7, 2020
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
When the Coronavirus Aid, Relief, and Economic Security Act (better known as the CARES Act) passed in late March, one of the most visible parts of the legislation was the Paycheck Protection Program, an unprecedented emergency lending program aimed to get small businesses across the country the financial assistance they needed to get through the COVID-19 pandemicâ€”and the ensuing economic shutdown.
Administered by the U.S. Small Business Association (SBA), the Paycheck Protection Program initially oversaw nearly $350 in loans for small businesses impacted by the coronavirus. Unlike a traditional SBA loan (like the SBA 7 loan) or an Economic Injury Disaster Loan, small business loans through the Paycheck Protection Program are eligible for loan forgiveness (up to 100 percent) if businesses use the loan amount to cover approved costs (including payroll costs, payroll tax, and utilities).
Unsurprisingly, with those loan terms, the demand for PPP loans was huge. Millions of businesses submitted loan applications through approved lendersâ€”many in the first few days after launching, as PPP loans are first come, first served.
But on April 16, less than two weeks after it started accepting applications, the Paycheck Protection Program ran out of funds, with a huge queue of applications yet to be processed and approvedâ€”and thousands of small business owners left without the financial assistance they need to keep their businesses afloat.
Luckily, in late April, Congress passed new legislation that replenished the Paycheck Protection Program with $310 billion in additional funding, so more financial assistance is on the way for business owners. But the first round of PPP funds exposed some serious issues with the business loan program, including a lack of preparation and oversight that saw millions of dollars in loans going to large, publicly traded companiesâ€”instead of the small businesses the program was created to help.
But the Small Business Administration took notice and issued new guidance to ensure that PPP loans are going to the small businesses that need the mostâ€”and the federal government is taking major steps to ensure compliance.
So, the question is, what are the new PPP directivesâ€”and how are these directives going to impact the way the Paycheck Protection Program operates moving forward?
When the Paycheck Protection Program launched, the intent was to supply loans to small businesses. But under the loan programâ€™s current eligibility requirements, hundreds of large (and, in many cases, publicly traded) companies were able to apply and qualify for loans, with many arguing that the companiesâ€™ large loan amounts and longstanding relationships with major banks allowed them to circumvent the standard application process and move their applications to the front of the queue.
For example, Ruthâ€™s Hospitality Group, owner of national chain Ruthâ€™s Chris Steakhouse, was able to secure a $20 million Paycheck Protection Program Loan because their number of employees per location is less than 500, which meets the SBA size standardsâ€”even though their total number of employees is upwards of 5,700. Under similar circumstances, popular fast-food chain Shake Shack secured $10 million through the PPP. And the Los Angeles Lakers received a $4.6 million PPP loanâ€”despite being the second most valuable franchise in the NBA.
When news of these large companies receiving funding through the Paycheck Protection Program went public, people were outragedâ€”including many in the federal government. President Trump, Treasury Secretary Steven Mnuchin, and both Democrats and Republicans in Congress have all spoken out against large companies that used the Paycheck Protection Program to secure funding when they had access to other capital.
And not only has the government slammed these businesses, but theyâ€™ve also taken steps to prevent large businesses from receiving additional funding moving forward.
Clearly, the initial rollout of the Paycheck Protection Program didnâ€™t go as plannedâ€”and a decent chunk of the funds went to large businesses. But there are now new PPP directives in place to ensure loans get into the hands of the small business owners that need them, including:
The Treasury Department is also encouraging large companies that received funding through the Paycheck Protection Program to return the loans. (Many companies, including Shake Shack and the Los Angeles Lakers, have already returned their PPP loans.) If a large company received funds through the PPP before the new regulations went into place, they have until May 7 to return the loan amount in full without penalty. According to guidance issued by the Treasury, â€śAny borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.â€ť
If your PPP loan application wasnâ€™t processed the first time around, you were likely frustrated at the lack of oversightâ€”and how that lack of oversight led to large, publicly traded companies securing millions in PPP funding. But these new directives are aimed to address that frustration and make sure that, moving forward, Paycheck Protection Program funds go to where they were intended to goâ€”into the hands of small business owners.