Law360 (June 10, 2020, 12:36 PM EDT) -- Key Senate Democrats on Wednesday promised legislation that would let the smallest small businesses get a second round of forgivable loans through the Paycheck Protection Program, which would be a major expansion of the bipartisan pandemic relief plan that so far has distributed over $500 billion.
The Prioritized Paycheck Protection Program Act would authorize another round of funding for companies with fewer than 100 workers that saw revenue drop by at least half due to the pandemic and also expect to exhaust their initial PPP loans.
Democratic senators on the Small Business Committee say more money is needed as coronavirus-related restrictions have continued longer than lawmakers and employers anticipated.
"Many small businesses will continue to struggle in the weeks and months to come," Sen. Ben Cardin of Maryland, the panel's top Democrat, said in a statement. "Every business we prevent from failing now, is a business that will be in a position to create jobs during the recovery."
"Only by aggressively targeting aid can we save our small businesses, the jobs they provide, and the Main Streets that make our communities proud," said Sen. Chris Coons, D-Del. The measure's third sponsor — Sen. Jean Shaheen, D-N.H. — said the bill would especially help the hard-hit restaurant and hospitality industries.
The Democrats' plan would have the Small Business Administration guarantee second loans through Oct. 1, although the agency would be allowed to extend that deadline. The maximum amount would be 2.5 times monthly payroll, up to $2 million — a much lower ceiling than standard PPP loans. The money for "P4" loans would come from the existing pool of PPP funding, which has seen about $510 billion used out of $660 billion allocated by Congress.
P4 funding would have stricter eligibility requirements than the first round of PPP loans.
Publicly traded companies may not apply, and the cap of 100 employees is much lower than the cap of 500 for general PPP, which also offers more exceptions.
"But the orientation is for businesses even smaller than that," Squire Patton Boggs LLP partner Kirk D. Beckhorn said in an interview. The proposal explicitly mentions sole proprietors and the self-employed."
The only exemption, Beckhorn said, is for hospitality and restaurant businesses with multiple locations — but the outlets could get no more than $2 million combined, minimizing access for big chains.
Reavis Page Jump LLP partner Deena Merlen said this makes sense, given the national outcry over forgivable loans to companies including Ruth's Hospitality Group and Shake Shack.
"The restaurant and hotel industries lobbied hard, and in the earlier round, separate subsidiaries and locations applied as businesses even if they were part of a national or international chain," she said in an email. "Under the proposed P4 program, affiliated businesses with separate locations would be prevented from receiving more than $2 million in aggregate P4 loans."
The Democrats' requirement of a 50% revenue drop could turn into a "liability trap," warned Boies Schiller Flexner LLP partner Jesse Panuccio, a former senior official at the U.S. Department of Justice.
"This is more exacting than the necessity certification currently required," he said in an email. "For very small businesses that do not have sophisticated or monthly accounting of revenue, this could be an obstacle."
A former Democratic Senate staffer pointed to the mandate that P4 applicants expect to use up their original PPP loans.
The proposal "requires a small business to be 'on pace to exhaust' its initial PPP loan. But it doesn't appear Congress will define the phrase, which may lead to some uncertainty until SBA defines it in guidance," Roscoe Jones Jr. of Gibson Dunn & Crutcher LLP said in an email.
The text of the bill was not immediately available, but the sponsors published a one-page overview and a section-by-section summary. The language may not be final and the bill was not yet formally introduced as of Wednesday.
The measure's path forward depends on bipartisan support from Senate Republicans and the Trump administration.
Small Business Committee Chairman Marco Rubio did not address the proposal at a hearing Wednesday. Spokespeople for the Florida Republican did not immediately respond to a request for comment.
However, one GOP committee member said he has heard interest in a second round of PPP loans.
"Every single small business owner that I spoke to around the country had the exact same words: Without the Paycheck Protection Program, they would not have survived," said Sen. Tim Scott, R-S.C. "Many are asking about a second bite of that apple."
Scott posed a question to the hearing's two witnesses, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza: "Is there an appetite for folks to perhaps see another four weeks of the PPP in addition to what they already have?"
Mnuchin, who has been the administration's lead congressional negotiator for pandemic relief packages, sounded open to some sort of additional aid.
"I definitely think we are going to need another bipartisan [bill] to put more money into the economy," he said. "We don't want to rush into that. ... Whatever we do going forward needs to be much more targeted, particularly to the industries and small businesses that are having the most difficulty in reopening."
A former Republican Senate staffer warned not to read too much into that exchange, and Mnuchin may not have even known about the brand-new Democratic proposal.
"I'm not sure I see anything in this bill that would make the administration or congressional Republicans particularly excited about supporting it," Pablo E. Carrillo of Squire Patton Boggs said in an interview. "I could see there being a good amount of reticence among Republicans to give Democrats a win."
GOP lawmakers might also have substantive objections.
When the Senate last week approved a broadly bipartisan House bill giving employers more time and flexibility to use the money, several Republicans expressed concerns about extending the program into the fall. GOP Sens. Ron Johnson of Wisconsin and Mike Lee of Utah said the PPP was meant to be a stopgap solution during pandemic-induced lockdowns, not a long-term funding source.
After a bipartisan deal with the administration, the Small Business Administration confirmed Monday that it plans to stop approving loan applications on June 30, the original cutoff date established when the Cares Act launched the program in March. It also confirmed that it would interpret the law passed last week as still allowing partial forgiveness for employers who don't spend at least 60% of their funds on payroll.
--Editing by Marygrace Murphy.
Correction: A previous version of this article misstated the maximum number of employees a company can have to be eligible for loans under the Prioritized Paycheck Protection Program Act. The error has been corrected.
Update: This article has been updated with comments from attorneys.
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