One hundred and twenty-seven national trade groups sent a letter today to Congressional and Administrative leaders asking them to quickly enact three key improvements to the Paycheck Protection Program (PPP):

  • Eliminate the unnecessary 75/25 rule;
  • Extend the eight-week period for purposes of calculating loan forgiveness; and
  • Extend the June 30 safe harbor date for rehiring and restoration of pay.

The S Corporation Association eagerly signed this letter.  The PPP is the single-most effective program Congress has devised to help businesses through the crisis, but it is badly in need of a tune-up.  Recent SBA numbers indicate demand for the loans has all but dried up even as surveys of small businesses warn that one-third or more expect they will close for good.

Addressing the letter to both Congress and the Administration sends an important signal.  This is not just a task for Congress alone, as much of the PPP’s malaise is the direct result of administrative actions. Eliminating the 75/25 rule, for example, is something the SBA could do on its own.

More importantly, the letter focuses on keeping the PPP relevant and available.  For too many weeks, Treasury and SBA officials have been talking down their own program, apparently more worried about negative press than helping employers.  In response, many small business employers are foregoing applying for a loan, or giving back loans they already received.  This has serious implications for the economy and workers, and it needs to be corrected.

The PPP was enacted and implemented at a moment of crisis.  It was designed to mitigate the long-term adverse effects of the government shutting down businesses for an indeterminate period of time by providing massive amounts of funding to employers on easy terms.  It had the obvious purpose of preventing the cascading destructive force of businesses collectively deciding to lay off vast numbers of their employees.  For businesses who retained their employees and kept them off unemployment, the loan’s terms were the easiest possible – you didn’t have to pay back the loan.

It worked — millions of businesses applied and received the loans, giving them the incentive and resources necessary to keep their workers employed while the economy operates at half-speed.

Then the SBA apparently lost focus.  They stopped issuing clear rules intended to speed and maximize participation and focused instead on rules that conflicted with previous guidance and narrowed participation, together with lots of talk about audits and criminal referrals.

The good news is the PPP can work again.  The most recent guidance from the SBA corrects past errors and, for smaller borrowers at least, clarifies that their good-faith attestations will not be held against them.  The three reforms included in the business community letter would help, too, by better aligning the timing of the loans with the current COVID-19 response.

Both the Senate and House are looking at moving these reforms this week.  They should act quickly to restore confidence and energy to this critical program.  The Paycheck Protection Program is not perfect, but its been more effective than anything else in helping keep people employed and businesses open.  We need the PPP to succeed.