Paycheck Protection Program Expansion Proposed by Senate Republicans

On July 27th, the Senate Majority Leader Mitch McConnell announced the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act as the Senate Republicans proposal for “Phase 4” of economic relief for individuals and businesses impacted by the Covid-19 pandemic. In addition, Republican Senators Rubio and Collins introduced the Continuing Small Business Recovery and Paycheck Protection Program Act, a federal relief package that builds on the success of the bipartisan Paycheck Protection Program (PPP) and other small business relief programs in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-36).

This follow-on to PPP1 is intended to further assist small businesses by providing them $190 billion to support second draw loans from the PPP, restricted to firms with fewer than 300 employees that have experienced at least a 50 percent reduction in gross revenues.  Firms meeting these standards would be able to apply for a second loan equal to 2.5 times total monthly payroll costs up to $2 million, and these loans are forgivable if at least 60 percent of the loan is used to cover payroll costs.

In addition, The HEALS Act would expand forgivable expenses to include worker protection costs and covered supplier costs, simplify the forgiveness process for smaller loans, and expand PPP eligibility to certain 501(c)(6) organizations. The Small Business Administration (SBA) would have the authority to provide up to $100 billion in low-cost loans (maturity up to 20 years with a 1 percent interest rate) to “recovery sector businesses,” defined as seasonable businesses and businesses located in low-income census tracts that meet the SBA’s revenue size threshold, have fewer than 500 employees, and experience at least a 50 percent decline in gross revenues.

The Continuing Small Business Recovery and Paycheck Protection Program Act has four main components (this material is taken from Senator Rubio’s one-page bill description):

7(a) Loans to Recovery Sector Businesses:

  • Authorizes $100 billion in long-term, low-cost loans to recovery sector businesses, which include seasonal businesses and businesses located in low-income census tracts that meet the applicable SBA revenue size standard, have no more than 500 employees, and demonstrate at least a 50 percent reduction in gross revenues.
  • Loan amounts would be available at up to twice the borrower’s annual revenues, not to exceed $10 million. The loan would have a 100% SBA guarantee and maturity of up to 20 years with a one percent fixed interest rate to the borrower.
  • Waives the SBA’s credit elsewhere test and allows the borrower to defer loan and interest payments for the first 2 years.
  • Allowable loan uses include working capital, acquisition of fixed assets, and refinancing existing indebtedness.

 PPP Second Draw Loans:

  • Provides $190 billion of committed and appropriated funds to support PPP and PPP Second Draw Loans.
  • Defines eligibility for PPP Second Draw loans as small businesses that meet the applicable SBA revenue size standard, have no more than 300 employees, and demonstrate at least a 50 percent reduction in gross revenues.
  • Includes a $25 billion set-aside for entities with 10 or fewer employees and a $10 billion set aside for loans made by community lenders.
  • The maximum loan size would equal 2.5 times average total monthly payroll costs, up to $2 million. Businesses that received a PPP loan may not receive another PPP loan that aggregates to more than $10 million.
  • The 60/40 cost allocation for payroll and non-payroll costs to receive full PPP forgiveness continues to apply.

PPP Improvements:

  • Expands forgivable expenses to include covered supplier costs, covered worker protection expenditures, and covered operations expenditures.
  • Allows borrowers to select a preferred 8-week period through 2020 to use the forgivable loan proceeds.
  • Simplifies the forgiveness application process for smaller loans.
  • Expands PPP eligibility to include certain 501(c)(6) organizations, including Chambers of Commerce and Destination Marketing Organizations with 300 or fewer employees, excluding lobbying expenses.
  • Establishes a specific PPP loan calculation for farmers and ranchers and provides Farm Credit System Institutions with greater certainty and equity in participating in PPP lending.

Small Business Growth and Domestic Production Investment Facility:

  • Provides for $10 billion in long-term debt with equity features to registered SBA Small Business Investment Companies (SBICs) that invest in small businesses with significant revenue losses from COVID-19, manufacturing startups in the domestic supply chain, and low-income communities.

A section-by-section may be found at https://www.rubio.senate.gov/public/_cache/files/20f62534-9e98-4d28-9c28-8f36ad06444b/02741A2731C1AA4D4EBA0287B6E0DE49.continuing-small-business-recovery-and-paycheck-protection-program-act-section-by-section-final-updated-1-.pdf

By Mark Friedlich, Esq., CPA.

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