Restrictions on a federal emergency loan program for small businesses has borrowers worried. At a press conference Wednesday House Speaker Nancy Pelosi reportedly said lawmakers would vote on changes to the Paycheck Protection Program next week. The measure is also expected to find support in the Senate.
Business owners say they need more time to spend the money without losing loan forgiveness eligibility.
The Paycheck Protection Program (PPP) is one of the major ways Congress has tried to get money into the hands of small business owners by offering forgivable loans to cover payroll expenses as economic activity withered because of the coronavirus. 111,773 Michigan businesses received approval for PPP loans totaling $15,778,056,406 as of May 16.
Yet some business owners are hesitant to accept the offer unless Congress loosens some of the PPP’s restrictive terms. Otherwise, businesses could end up owing money on Paycheck Protection Program loans that were meant to help businesses weather the economic disruption caused by the coronavirus.
“I’m thinking maybe this week or next week we’ll end up signing (a PPP loan) but I want as much time as possible because that eight weeks is going to be tough,” said Debra Hibbeln, a dentist and partner at her firm in Rochester Hills.
The amount of forgiveness of a PPP loan is determined by a borrowing business’ payroll expenses over an eight-week period beginning on the date businesses get the money. There are other stipulations to PPP loan forgiveness. 75% of the loan has to be put toward paying workers, but businesses failing to meet the 75% threshold will be eligible for partial forgiveness, according to Rob Scott, Regional Administrator for the Small Business Administration Great Lakes Region. It’s the eight-week forgiveness timeframe Scott said is the biggest concern of many businesses and lenders.
Manufacturing in Michigan has restarted. Construction and curb-side retail service, too. Yet many other types of businesses are still under restrictions set by Governor Gretchen Whitmer. For businesses forced to lie dormant because of the coronavirus pandemic, like Hibbeln’s dental practice, the PPP loan forgiveness requirements can seem nearly impossible to meet.
“If we aren’t open, it’s going to be super hard,” Hibbeln said.
The PPP forgiveness requirements would require Hibbeln to re-hire and pay her employees for eight weeks at a time when her business is closed by order of the governor. Hibbeln worries about finding money to pay her staff in the ninth week, and onward. It’s unclear if she’ll even be able to start bringing in customers at that point.
For whatever portion of a PPP loan that isn’t forgiven, the loan has a maturity of two years and an interest rate of 1%.
“That’s still a good loan, but gosh, it’s borrowing more money at a really bad economic time,” Hibbeln said. “If they’re willing to forgive it then why not (change the regulations) so we can get it forgiven?”
House Speaker Nancy Pelosi reportedly said at a press conference today that lawmakers will be voting again next week on a separate measure to expand PPP forgiveness requirements to give businesses more time to use the money without needing to pay it back, according to Reuters.
"What it does is extend the time which you can hire, re-hire people, extend the time which you can pay back, and also undo the 75-25, which was debilitating," Pelosi said, referring to the requirement that at least 75% of a loan go to payroll and no more than 25% go to other costs.
"We saw a quick fix on how we could make this work better," Pelosi said.
The U.S. House previously passed changes to the PPP in passing the HEROES Act. The Senate isn’t going to vote on the HEROES Act, and a standalone bill to make PPP changes would be more likely to pass, given vocal support from some senators like Republican Marco Rubio of Florida.
Michigan Congresswoman Elissa Slotkin said she’s been getting calls, emails and texts about the eight-week PPP forgiveness window from business owners in her district in southeast Michigan. She said one business owner told Slotkin they were considering giving back the PPP money rather than worry about repaying the loan.
“And the minute I hear that, that just is the wrong direction to be going in,” Slotkin said.
Slotkin voted in support of the HEROES Act, noting she disagreed with some of policy included in the overall package. She said she would also support a standalone bill to make fixes to the PPP.
“I’ve heard from a ton of business owners who say (PPP) is a lifesaver. This is going to keep me open,” Slotkin said. “But there are going to be people who struggle to figure this out given that Michigan isn’t fully open (for business).”
The PPP was quickly erected this spring to help business survive the coronavirus pandemic and has so far approved more than $513 billion in forgivable loans nationwide.
“I would say, there's probably more demand (for PPP loans), as long as the rules change,” SBA Regional Administrator Scott said. “The way it looks right now… because of the parameters that are set, most businesses are probably leery, as well as lenders, to do the deal.”