Senators Want New PPP Program With Different Guidelines

It’s looking increasingly likely that Congress will vote on a new round of COVID-19 stimulus funding, with the Paycheck Protection Program (PPP) an increasing area of focus. The latest plan put forward by Senate Republicans calls for a fresh round of funding for PPP loans, although this time with somewhat narrowed eligibility criteria.

Co-authored by Senate Small Business Committee Chair Sen. Marco Rubio (R-Fla.) and Sen. Susan Collins (R-Maine), the GOP bill calls for altering the PPP to make it more relevant for truly small businesses whose revenues have been significantly diminished by the pandemic.

Proposed changes include lowering the employee cap for eligibility from the current 500 to 300. A subset of funds would also go toward micro-businesses with 10 employees or less. Additionally, Rubio’s and Collins’ plan would limit loans to businesses that have lost at least 50 percent of sales compared to a previous year’s quarter.

However, the proposal would expand the ways in which businesses can use PPP funds and still qualify for loan forgiveness. Whereas the program’s original rules required using most of the money for employee pay, the new plan would let businesses include some expenses to enhance worker and consumer safety, such as masks, Plexiglass shields and upgraded HVAC systems.

“We are now beginning to see that as the PPP funds are being exhausted, some companies are having to face once again the potential of having to lay off some of their workers. And so that’s why it is time for a second round of PPP assistance,” Rubio said in unveiling the plan on the Senate floor, according to reporting by The Hill.

Collins noted that while the application deadline for the PPP’s first round has officially expired, the need has not. She said the initial round was a genuine service to SMBs, with that progress best preserved by a second, more tailored round.

“More than 76 percent of Maine’s small businesses have reported receiving a PPP loan – an estimated 76 percent of Maine jobs have been supported by this critically important program,” Collins said on the Senate floor.

What Our Surveys Found

But it wasn’t only Maine SMBs that felt the effects of the PPP. According to PYMNTS’ recent series of surveys of Main Street businesses, the program was particularly important for those for whom it was intended: businesses that weren’t sure they’d survive the pandemic. PYMNTS’ April survey found that “unstable” SMBs were the most likely to have applied for government assistance (nearly 40 percent), along with 38 percent that said they were unsure their companies would survive the downturn after having applied for PPP funds. That compares with roughly a quarter (26 percent) of those who felt their firms would pull through.

And based on our early May survey, the share of firms applying for PPP funding had risen to 46 percent of all companies surveyed, up from 41 percent in April. That coincided with a decrease in the portion of SMBs that were fighting cash flow shortages with cost-cutting measures like reducing employee payroll, not paying their bills or not paying rent.

The data also showed an uptick in SMB owners’ opinions of their longer-term prospects. Some 40 percent of SMBs reported in mid-May that they had enough funding to stay open for one to three months – up from a third on April 6. Conversely, the portion of SMBs that had only enough funding to stay open for three weeks or less dropped to 44 percent as of May, from 58 percent on April 6.

But as our data from later in May showed, the firms most likely to have successfully applied for and received funding were mostly stable SMBs. Some 43 percent of SMB owners who were sure their businesses would survive the pandemic reported getting PPP loans versus 30percent of those who didn’t expect to survive and 11 percent who were unsure.

The late May data also began to quantify the reticence of SMBs that didn’t apply for PPP funding despite being eligible for aid. Some 30 percent of SMB owners who didn’t apply told us they decided not to do so at least partly because of concerns about incurring debt. Another 17.3 percent cited not understanding enough about PPP loans.

Other factors commonly cited included being uncomfortable accepting government aid, believing their employees were better off filing for unemployment and thinking their banks were no longer accepting PPP applications.

SMB Aid Should Help Genuine SMBs

In all, our data showed that the PPP certainly helped to reintroduce a sense of stability among small business owners, especially as some of the myriad bumps associated with the program’s rollout were ironed out. But the data also showed that the program’s initial version worked best for firms that were already bringing in fairly large amounts of revenue and felt pretty good about their future.

That’s arguably a good thing, as the alternative would suggest that the PPP was creating a wave of “zombie companies” that were destined to eventually fail. But it seems Rubio and Collins are at least sensitive to concerns that an SMB relief program ought to relieve genuine SMBs.

Will Banks Balk At Even More Rules?

Still, adding new rules to the PPP will create more complications for the banks that are charged with actually underwriting and distributing loans on the federal government’s behalf.

As Planters Bank CEO Dan Speight explained over the course of his many conversations with Karen Webster and Ingo CEO Drew Edwards, the more eligibility factors that banks must verify before making loans, the slower the disbursement process will be. After all, he noted, banks don’t want to end up on the hook for owning PPP loans because they accidentally distributed funds to a business that shouldn’t have qualified.

“We entered this program under a certain set of expectations about how things would be and how [the funds] would be used and paid back,” Speight said. “Changes could affect us and our balance sheet.”

How enthused banks would be for another round of PPP with more rules remains to be seen. So does whether Rubio’s and Collins’ proposal will ever become law: Democrats have already confirmed that they think the GOP’s $1 trillion overall stimulus proposal is insufficient. They favor a $3 trillion package that also includes an extension for SMB relief funds.

Add it all up and SMBs wouldn’t be wrong to believe that more relief funds will be on the way. But when exactly that will happen – and in what form – remains unknown.