Is Congress Finally About To Fix PPP’s Many Problems?

Demand For PPP Loans Evaporates; $150B Still Available

Congress adopted the $600 billion-plus Paycheck Protection Program (PPP) to help American small- to medium-sized businesses (SMBs) stay afloat by using forgiveness loans to keep their workers employed and cover certain overhead expenses while the economy was shut down.

But while generally regarded as a sincere effort to bail out Main Street businesses, the distribution of PPP funds has been controversial. That’s because Shake Shack, the Los Angeles Lakers and other large (and often publicly traded) companies initially qualified for money even though they weren’t what the program’s creators had in mind for bailouts.

Concerns have also arisen recently about the eight-week term of PPP forgiveness loans being insufficient, or that too much of the money was required to go toward payroll. New Treasury Department Interim Final Rules for the program, issued shortly before Memorial Day, are also much more technical and complex than initially anticipated. Critics say that means the average SMB owner will need a lawyer, an accountant or an advanced math degree to figure out what portion of a loan to submit for forgiveness.

The PPP’s various complexities have had a chilling effect on the program, with some $100 billion in unclaimed aid still remaining in the fund. Ingo Money CEO Drew Edwards noted in a recent discussion with Karen Webster and Planter’s First Bancorp CEO Dan Speight that those funds are likely never going to be claimed.

“I think the time has passed,” he said. “I think businesses at this point have kind of got a plan and they’re feeling OK — like they can get through this or they’re filing bankruptcy or they’re bailing out. … Even smaller businesses, by now they’ve either given up or they’ve got a plan and [the PPP] money at this point has too many strings attached to it.”

Those strings not only impact which businesses are applying for funds, but which ones ended up returning the money. Edwards noted that Ingo Money was initially approved for a PPP loan but is one of many SMBs that decided to give the funds back. The company returned the cash after the government changed its guidance on which firms were eligible to accept PPP loans and attached potential criminal liability on firms that an audit determined didn’t deserve the funds.

Other SMBs have returned the money as well. Consider the Reading Room restaurant in Katonah, New York. Owner Peter Menzies told Bloomberg that he returned $125,000 in aid because restrictions on how many diners he can serve at once mean he would lose money if he reopened and rehired his 20 workers.

Moreover, Menzies noted that the rules on what businesses must do to get the loan forgiven are so tightly structured that his restaurant would end up closing as soon as the loan period ended on June 11.

“We were essentially just going to rehire people, ask them to go off of unemployment, take lower wages, and then not really work or only work in a very limited capacity,” Menzies said.

Seeking to address such complaints, the House last week passed a Paycheck Protection Program Flexibility Act to modify the PPP initiative. Among the changes, the bill would extend the length of time businesses have to use PPP funds to 24 weeks from the current eight weeks. It also pushes a deadline to rehire workers three months past the program’s original June 30 deadline.

Most importantly, the measure lowered that share of funds that must go to payrolls from 75 percent to just 60 percent. That’s important to SMBs with high overhead costs other than staffing.

Paul Becht, a partner at accounting firm Margolin, Winer & Evens, told CNBC the new measure is needed to reflect the changing situation on the ground since the PPP first passed in April.

“People thought two months was probably going to be enough to get [a recovery] done,” Becht said. “It turned out it’s not.”

That’s particularly true regions like the Northeast, where the hospitality and recreation verticals will likely be highly constrained by social distancing rules through the early reopening period. Experts say such firms probably won’t see a return to their old levels of physical consumer engagement until 2020’s end at the earliest.

The Paycheck Protection Program Flexibility Act enjoyed strong bipartisan support in the House, where it passed 417-1. In the Senate, Minority Leader Charles Schumer of New York has endorsed the measure, but the majority Senate Republicans have offered some mild pushback on the bill’s exact terms.

For example, Sen. Marco Rubio of Florida who chairs the Senate Small Business and Entrepreneurship Committee, has been pushing for slightly different reforms. He wants to only extend the rehiring deadline to 16 weeks instead of 24 and doesn’t want to change the percentage of the funds that businesses will have to dedicate to payroll.

However, given the similarities between Democratic and Republican positions, experts say the two sides will likely soon reach a compromise and send it to President Donald Trump’s desk for a signature. Supporters are hopeful the president will sign such a bill without issue, but Trump hasn’t signaled his intention one way or the other so far.

So, can the PPP finally be perfected nearly two months after its rollout? Legislators certainly seem to think so — and SMBs that are just barely holding on have no choice but to hope so as well.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.