The Paycheck Protection Program, the small business loan program created by Republican Sens. Marco Rubio and Susan Collins as part of the CARES Act, appears to be too bogged down in problems to be worth re-upping for a third round in the next version of legislation. First there were all the problems with the massive, publicly traded corporations that took the first big bites out of it; the fact that small business owners of color were largely shut out; and the fact that the loans didn't go to the parts of the country that needed them most.
Now it's becoming clear that the program is so complicated, recipients of the loans could be left with huge debt loads because meeting the requirements for the loans to be forgiven is so stringent. "Virtually every small business borrower believes that this will be forgiven," Paul Merski, a lobbyist for the Independent Community Bankers of America told The New York Times. "They took it out assuming that it would be a grant but it's not—you have to abide by very complex rules and regulations on how this is spent."
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That includes requiring that businesses spend 75% of the loan to cover payroll, leaving just 25% to cover rent, utilities, insurance payments, and other overhead. For businesses that haven't been able to reopen, and have had to pay those monthly bills or go deeper into arrears one more month, that restriction is a problem. For some business owners, it made more sense for the employees to stay unemployed and get the beefed up unemployment insurance made available. That's particularly true because of the eight-week timeframe for holding on to employees required in the loan program. That eight-week period is ending soon, with no assurances that businesses can resume, or that there will be enough revenue to stay open with so much of the public unready to resume life as normal.
Merski's group, the ICBA, has asked Treasury and the Small Business Administration to rewrite those rules and to allow the loans to be split evenly between payroll and overhead, especially rent. "Now that over $500 billion of these loans have been approved, we're really focused on the forgiveness phase, and the forgiveness phase could be 10 times more complex than the initial program," Merski said. A bipartisan group of more than 20 senators has also asked Treasury and the SBA to change the forgiveness program so that businesses, particularly restaurants, can use the loans for a 50-50 payroll/overhead split.
Douglas Geller, a business owner in Los Angeles, describes his issues with his clothing stores. He had six employees, all of whom he had to lay off. He got his loan a week ago, and says that the eight-week countdown clock starting now is a problem—he can't fully reopen his stores and hire everyone back, though he might be able to rehire one or two people because he can sell online and deliver the clothes to customers curbside now. "We're not alone," he said. "I'm friends with other retailers, from the department store level down to mom-and-pop small businesses, everyone has these similar concerns: Forgiveness and the pace of reopening."
Asking these businesses to take on additional debt burden when the requirements for loan forgiveness remain murky and changeable is bad. Plowing even more money into this system makes no sense. What does make sense is a plan like Rep. Pramila Jayapal's Paycheck Guarantee Act. The proposed legislation fills in whatever gaps employers have by covering 100 percent of their base payroll for at last three months, for employees paid up to $100,000 annually. That's how Denmark has handled this, and how that country has lessened the economic damage of the crisis.
To keep up with what's been done so far, here's a primer on bills passed to date.