After a bumpy rollout the Paycheck Protection Program ended up being a crucial lifeline to millions of businesses last year and distributed over 5 million loans totaling over half a trillion dollars.
But the program was marred by unclear rules and unequal access that left some small businesses out of the early rounds while big businesses like the Los Angeles Lakers and Shake Shack (SHAK) accessed loans before public pressure compelled them to return the money.
After expiring last summer, the program is now officially back: Treasury officials announced Friday that the program will re-open on Jan. 11. The program will only be open initially to loan applications from community financial institutions. First-time borrowers will have the ability to apply next Monday and Tuesday, followed by repeat borrowers beginning Jan. 13.
Businesses that wish to access money via other institutions will be able to apply for a loan at some point “shortly thereafter.”
The program is set to look quite different from the first round. In an interview with Yahoo Finance this week — just before violence engulfed Capitol Hill — Sen. Ben Cardin (D., Md.) acknowledged that the program needed to be tweaked before this current “second draw” allows businesses to get another loan.
“It wasn't everything I wanted,” he said of the first PPP iteration, which was negotiated alongside his Republican colleague Marco Rubio of Florida, but “at the end of the day, we've got substantial help out to small businesses and saved small businesses.”
Cardin is the Democrat’s ranking member on the Senate Committee on Small Business and Entrepreneurship and was one of the creators of the program. “We think we have corrected it on this most recent round,” he said.
The recently passed stimulus bill includes $900 billion in new relief, including $284 billion for the PPP, which will be combined with about $140 billion left over from the first round of aid.
During a briefing Friday morning, a senior Trump administration official said the overarching goals of the program in 2021 include measures to target the money only to businesses "who need it most," as well as "a clear process to make sure this runs smoothly for all involved."
Here are five of the biggest changes to the program:
Stricter reporting restrictions
A key change going forward is that businesses must be able to demonstrate at least a 25% drop in revenue over an entire quarter last year. The first round of the program — which was operating as the pandemic was still unfolding — essentially required businesses to testify that they expected to be in trouble because of COVID.
“The first round of Paycheck Protection Program was kind of by the honor code,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget.
Businesses were given the money as quickly as possible because they were still in the middle of the initial lockdowns. The idea was to sort things out when businesses returned to have the loans forgiven.
This time around, harder numbers will be required on the front end. Cardin said the idea was to “fine tune” the process; now “we require that there be a significant revenue loss as a result of COVID 19 in order to get help.”
The new program will also have a time-lapse — probably about a day — between when the application is submitted and when an approval decision is rendered. This is, in part, so government officials can ensure “borrowers are who they say they are.”
In the first phase of the PPP, government approval was often given immediately and sent to private lenders to fulfill. In this round, most businesses can get forgivable loans equal to 10 weeks of payroll, and restaurants will be eligible for loans of up to 15 weeks worth of payroll.
Restaurants are “the ones we expect to kind of suffer the most during this winter period because they were really counting on outdoor dining,” Goldwein said.
On Friday, the jobs report found that the food services category lost 372,000 jobs in the month of December alone.
A cap on loan sizes and a focus on the smallest businesses
Another change to the program is a new cap on loan size.
The forgivable loans will be capped at $2 million; previously, PPP capped loans at $10 million. And to be eligible, businesses can have no more than 300 employees, rather than the initial 500. Businesses that are publicly traded or backed by private equity also have new rules to bar them from accessing loans.
The revamped rules are an attempt to avoid revelations that have come as late as last month about how big business was able to access loans. The Washington Post recently reported that more than 1,000 Sonic Drive-In restaurants received more than $100 million in PPP loans in 2020 “despite the fact that Sonic is backed by a private-equity giant and performed well during the pandemic.”
There is also more focus on underbanked communities.
Guidance on the new rules for the program notes that Congress has “set aside funds for new and smaller borrowers, for borrowers in low- and moderate-income communities, and for community and smaller lenders.”
The bill sets aside $15 billion just for community financial institutions, $15 billion for other smaller lending institutions like credit unions, and other funds for the smallest of the small businesses.
Two changes for existing PPP recipients
The latest stimulus bill also included changes in the tax law so that PPP loans, for the purposes of tax filing, will no longer count as income. And the money a business spends using PPP funds is tax deductible.
“This is kind of actually a very large tax break for businesses that took the PPP,” Goldwein noted.
Another new feature is simplification of the loan forgiveness process for the smallest businesses.
Those with a loan of less than $150,000 will be able to have their debt forgiven if the recipient simply fills out a one-page form and attests the funds were used in accordance with PPP guidelines. The current loan forgiveness form requires a detailed accounting of how the money was spent.
An analysis estimated that the paperwork simplification alone would save these small businesses billions of dollars and “70 million hours of owner labor” in decreased paperwork.
Once the program is up and running, small businesses will have until March 31 to access the new funds.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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