• Recent Developments in the Paycheck Protection Program (PPP)

• Treasury Secretary Mnuchin announces important changes

• Senate small business committee Democrats ANNOUNCE a new PPP bill

On Wednesday, June 10, 2020, in testimony before the Senate Committee on Small Business & Entrepreneurship yesterday, Treasury Secretary Mnuchin announced two major changes to the PPP that the Trump Administration will put into place sua sponte.

• More business owners will be eligible to have their loans partially forgiven. Originally, the CARES Act required that PPP borrowers had to spend 75% of that loan on maintaining worker payrolls so it could be forgiven. Last week, of course, Congress enacted into law a reduction in that threshold to 60%.  But, Secretary Mnuchin confirmed to the committee that even small businesses that obtain a loan from the government, yet spend less than 60% on payrolls, could still be eligible for partial forgiveness, as long as 60% of the amount that is forgiven helped keep workers employed. This will resolve a narrow but important technicality that remained unclear under the new law.

• Guidance will be released to allow more people with criminal records to tap into PPP. Originally, the CARES Act barred individuals with a criminal conviction in the past five years from participating in the PPP. However, yesterday, Secretary Mnuchin testified that the administration would roll back that bar to three years.

Also notable, at the hearing, Secretary Mnuchin drew a hard line in the sand on the administration’s unwillingness to release the names of businesses that received PPP loans. 

Finally, in the most widely-reported development, Secretary Mnuchin conveyed an openness to another round of PPP funding.  However, his testimony on this point was nuanced. He said that if there is a new round of PPP loans, they would need to be far more targeted, given how the economy has shown signs of improvement, as compared with earlier in the pandemic (referring to the Department of Labor’s announcement last week that in May the US gained 2.5 million jobs, lowering the unemployment rate to 13.3% – far better than expected.  Complicating Secretary Mnuchin’s position, however, is that the stock market, as reflected just yesterday by its worst performance since March, will likely be volatile and unpredictable going forward.

Senate Small Business Committee Democrats Roll-out the “Prioritized Paycheck Protection Program Act” 

Yesterday, in connection with Secretary Mnuchin’s appearance, several Senate Democrats in the Committee on Small Business & Entrepreneurship, who to date have been working productively with their Republican counterparts in the committee on the PPP, rolled-out a new legislative proposal of their own, called the “Prioritzed Paycheck Protection Program Act” (P4, for short).  As of publication of this post, a bill has not been filed, just an announcement of the bill and a section-by-section analysis.

Here is what appears to be going on here.

As of today, there remains about $130 billion in the PPP tank, which expires on June 30, 2020.  Generally, this P4 legislative proposal would (1) take those unused PPP funds and extend a new outside date for making loans, i.e., “P4 Loans”, to October 1, 2020 (with some provision for slippage), and (2) prioritize those unused PPP proceeds for the smallest of small businesses, including those in the hotel and restaurant sector.  It would do so principally by reserving the lesser of $25 billion or 20% of PPP funds for employers with 10 or fewer employees and also ensure that underserved and rural borrowers, including veterans, are prioritized in loan processing and disbursement.

The proposal would also address inadequacies that congressional Democrats have identified with the original program.  So it, for example, would do the following, among other things:

• Make public companies ineligible per se

• Let borrowers apply for forgiveness sooner than when the CARES Act allows, so they can more effectively deploy these funds for paychecks and other permissible purposes

• Incentivize lenders to lend small amounts to really small businesses and large amounts to big small businesses

• Provide for public disclosure of borrowers’ identities and information regarding their loans

• Otherwise beef-up the Inspector General’s ability to oversee/reform the program going forward

For this reason, this proposal is not likely to garner much, if any, Republican support in its current form.  But, it is certainly worth noting as Congress continues to deliberate how to improve the PPP, while funds remain, or otherwise support small businesses during the lockdown, in the run-up to another COVID-19 relief bill.  More likely is the possibility that this proposal, with others, may define the contours or trade space of such follow-on legislation, which we are likely not going to see – certainly in the Senate – before July 4th recess.

This post features contributions from Pablo Carrillo.