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PPP Likely to See Further Revision After Extension Vote

  • Congress is likely to approve an extension to the deadline for the Paycheck Protection Program
  • Further revisions could follow, such as making an updated calculation for non-employer entities retroactive
  • PPP has undergone significant changes since being reintroduced earlier this year, but only a handful of bills proposing further revisions have been introduced in Congress so far

Summary by Dirk Langeveld

If the overwhelming support for a House bill extending the Paycheck Protection Program is any indication, small businesses will soon have more than a few weeks to apply for a forgivable loan. But the program may see other revisions in the near future as well.

On March 16, the House voted 415-3 to extend the deadline for PPP applications from March 31 to May 31. The bill also permits the U.S. Small Business Administration to process applications through June 30, which reduces the chances that lenders will stop taking new applications well before the deadline to work through a backlog of existing submissions. For example, Bank of America stopped taking applications 22 days before the current deadline.

Several lenders and financial groups have backed an extension, saying it is necessary to work through applications and adapt to changes the Biden administration made to the program. An extended deadline would also allow more eligible businesses to apply for funding. As of March 21, the SBA had approved 3.1 million loans totaling $195.8 billion; approximately $96 billion remains from the funding allocated by the Economic Aid Act and American Rescue Plan.

The Senate is expected to vote on the PPP extension this week. The Federal Reserve has already extended its PPP liquidity facility to June 30.

House discussions on the bill hint at some further modifications that might take place if the program is extended into the summer. One idea that has won bipartisan support is to make the revised formula for non-employer entities retroactive, allowing those who applied for a loan before the revision to receive more money.

The new formula allows entities such as sole proprietors, independent contractors, and self-employed workers to apply for a PPP loan using their gross income rather than the previously required net income, which included deductions and often made the applicant ineligible or eligible only for a small loan. The new formula permits these applicants to receive up to $20,833.

The revised formula did not apply to non-employer firms that had already been approved for a PPP loan before the change took place. This situation led to criticism that some business owners were approved for loans that were much smaller than they would have received if they had applied later in the process.

Some congressmen have suggested that the SBA should be restricted from favoring certain businesses during the applications process. The latest round of PPP included an initial period that was only open to community financial institutions, and later added a two-week period where the SBA only accepted applications from businesses with fewer than 20 employees.

Another potential change that has been proposed is the reduction or elimination of an eight-week period between when a company can apply for a first draw PPP loan and when they can apply for a second draw PPP loan. This could potentially allow an applicant to submit two applications simultaneously, although a deadline extension would also make it easier for companies to abide by the eight-week window.

When PPP was revived for another round of forgivable loans under the Economic Aid Act with $284.5 billion, the program was revised to limit both first draw and second draw loans to smaller companies. The Biden administration later introduced a set of changes that expanded eligibility to business owners with non-financial felony records, those who were delinquent or in default on federal student loans, and legal non-citizens.

Few bills have so far been submitted in Congress seeking any further revisions to the program. The legislation that has been improved includes a measure that would make rural hospitals or hospitals serving areas of persistent poverty eligible for PPP loans and a bill that would prohibit the Consumer Financial Protection Bureau from overseeing lenders’ participation in the program.

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