Senate Sends PPP Loan Flexibility To Trump's Desk

By Andrew Kragie
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Law360 (June 3, 2020, 11:16 PM EDT) -- The Senate on Wednesday approved a bipartisan measure that would give more time and flexibility to employers who receive forgivable loans from the Small Business Administration's Paycheck Protection Program, sending the House-passed bill to President Donald Trump, who is expected to sign it.

The PPP Flexibility Act passed the Senate late Wednesday by unanimous consent, meaning no senator objected or demanded a vote. The House approved the measure last week with a 417-1 vote, but it stalled as several Republican senators raised concerns about a variety of unintended consequences for the $660 billion program meant to sustain small businesses and nonprofits and their employees while the pandemic locked down much of the U.S. economy.

The measure would give employers 24 weeks to spend the money and have the loans forgiven, tripling the current covered period of eight weeks. While an earlier version of the bill would have eliminated any requirement about how much companies must spend on payroll, the final text instead lowers the threshold from 75% to 60%.

Sen. Ron Johnson, R-Wis., expressed concern that the bill's language could prevent any loan forgiveness at all for businesses that spend up to 59.9% on payroll, rather than allowing a proportional forgiveness that many lawmakers seemed to support. Small Business Committee Chairman Marco Rubio and other senators hammered out an understanding with the Trump administration about interpreting and implementing the law in a way that avoids the all-or-nothing threshold.

"I am glad Congress came together to provide much-needed flexibility for small business owners to use their PPP loans as our economy begins to re-open," Rubio said in a statement. "I appreciate the administration's flexibility and commitment to address the bill's inadvertent technical errors that could create unintended consequences for small businesses as they seek forgiveness. If the administration cannot address these issues, Congress will need to fix them through additional legislation."

Johnson and Sen. Mike Lee, R-Utah, also wanted to see the loan program stop accepting applications in August instead of in December. They said the PPP was meant to be a stopgap solution during pandemic-induced lockdowns, not a long-term funding source.

Rubio, Johnson and Lee joined with the House bill's bipartisan sponsors for a letter meant to "clarify the congressional intent." They said that extending the covered period should not be interpreted to allow new loans beyond the original cutoff date of June 30, which the SBA should observe whether or not funds remain available.

Attorneys who study the loan program and advise clients welcomed the changes in emails to Law360 over the last week.

"These changes will allow more small businesses to stay afloat in the weeks and months ahead," said Roscoe Jones Jr., a Gibson Dunn & Crutcher counsel and Capitol Hill veteran. "By tripling the amount of time that businesses can use forgivable loans, the bill allows businesses a better shot at keeping their doors open, paying their businesses expenses, and rehiring or retaining workers."

Allyson B. Baker, the chair of Venable LLP's financial services practice, said the lower payroll threshold would help many employers.

"There are some companies with relatively low labor costs that are otherwise resource-intense businesses," she said. "There are also companies that are in high-rent jurisdictions that likely spend a higher percentage of overhead on rent."

Such businesses could range from fitness centers to mom-and-pop shops. Also, many companies would like to spread the benefits over a longer period as their area slowly reopens, especially in nonessential industries like entertainment.

The increased flexibility may spur greater demand for PPP loans. Congress has allocated about $660 billion for the government-backed private loans; the SBA reported about $511 billion in approved loans as of 5 p.m. Wednesday. It's not clear if lawmakers would add more funding if the program runs out of money again.

"Making forgiveness eligibility more attainable would likely make the program even more popular," said Steptoe & Johnson LLP associate Kate Jensen. "But because loan amounts are driven entirely by payroll costs and SBA has put out guidance discouraging certain types of businesses from taking loans, there seem to be other natural governors on the program's attractiveness."

Jesse Panuccio, a Boies Schiller Flexner LLP partner who has written about the program, also doubted a rush of new applications.

"Congress has not addressed the ever-changing regulatory requirements imposed by the SBA, so some business may still be wary of buying a pig in a poke," he said. "At the end of the day, I would not be surprised if any uptick in demand was relatively low."

And questions about the bill's implementation will raise new issues for recipients.

"Our clients would like to see more certainty and clarity in the program's implementation, whether that's done administratively or legislatively. To date, changes to the program have often resulted in more questions, not fewer," Jensen said. "The evolving — and often confusing — regulatory landscape has been a huge challenge for clients trying to play by the rules. For instance, we are still seeing new guidance and safe harbors on eligibility rules for PPPs — two months after the program went live."

"I do not envy the SBA and Treasury Department; this is an extremely difficult program to administer," Jones said. "That said, businesses thrive when there is certainty in market rules. When rules change while the program plays out, that means the goal posts are shifting in the middle of the game."

Jones pointed to a major question that remains unanswered: "What constitutes a need for a company to access a forgivable loan? The need standard is vague, and shifting guidance has created legitimate questions about its meaning, which deters some companies from participating in the program."

Panuccio also pointed to the certification of economic necessity as an area that remains murky. The former senior Justice Department official said to "expect an enforcement wave in the next few years."

The House also voted last week on a bill that would have required public disclosure of all PPP loans over $2 million; though the 269-147 tally narrowly missed the two-thirds majority it needed to pass under special expedited procedures.

However, disclosure could come about another way. Rubio joined with the top Democrat on the Small Business Committee, Ben Cardin of Maryland, in a letter Wednesday urging the administration to disclose more details about small-business relief — including the names of all PPP recipients and the amounts they received.

Congress could make further changes. Banking groups are suggesting that lawmakers allow automatic forgiveness for loans under $150,000, a threshold that would cover the vast majority of recipients but only 30% of loan dollars.

--Editing by Emily Kokoll.

Update: This article has been updated with the letter of congressional intent.

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