Congressional changes to payroll program come late in process for some

Congress last week approved changes sought by small business advocates to give owners more flexibility about how they could use the Payroll Protection Program money. However, those changes came just as some local business owners reached the deadline for spending the funding.

Several local companies applied for and were granted funding from the U.S. Small Business Administration through the Coronavirus Aid, Relief and Economic Security Act that was designed to keep employees off unemployment rolls during the economic downturn caused by the COVID-19 pandemic.

But the Payroll Protection Program, or PPP, came with rules, such as spending all the money within eight weeks and using 75% of the money only for payroll. As a result, some local business owners who obtained money gave it back out of concern they could not comply with the rules and therefore face paying back the money over two years as a loan.

The new law extends the time that businesses have to use the PPP money from eight weeks to 24 weeks. And, it lowered the payroll requirement from 75% to 60%, which freed it up to be spent on things such as rent and other business expenses.

“I had one borrower that wasn’t going to be able to use the full loan amount,” said Greg Deckard, president and CEO of State Bank Northwest of Spokane. “When I told them of the change, they were able to wait and utilize it for more rent and another payroll cycle. Otherwise, they were going to have to leave it on the table.”

Monday was also the end of the eight-week cutoff for many of the business owners who received the first round of PPP money, he said.

“It’s kind of unfair to them,” Deckard said of the early applicants. The rules changes “came at the very end where they were not able to use the flexibility.”

The rules finally came about through an act of Congress even though business advocates had for months been trying to convince U.S. Treasury Secretary Steven Mnuchin to change the eight-week window for using the funds.

The problem was that the rules were contemplated before states enacted stay-at-home orders, so business owners were left using government funding to pay employees without knowing whether they could open their businesses before the money ran out.

Despite resisting those lobbying efforts, Mnuchin issued a joint statement Monday with SBA Administrator Jovita Carranza praising President Donald Trump and congressional leaders for approving the Payroll Protection Program Flexibility Act.

“This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country,” the statement said. “We look forward to getting the American people back to work as quickly as possible.”

Jack Heath, president and chief operating officer at Washington Trust Bank, said his clients gave back about $78 million of the PPP money because they didn’t believe they could comply with the rules that we just changed.

“We are telling our customers to not apply for forgiveness, continue to spend your funds appropriately and wait for additional guidance,” Heath said. “I’m just excited to see Congress clean these bills up.”

Deckard, who serves as treasurer for the Independent Bankers of America, said the new rules could spark another run at the PPP money, of which $110 billion still remains. Business owners are still eligible to apply or reapply for the money until the end of June.

“I believe most people who wanted to participate have,” Deckard said. “Now that this information has come out, maybe those on the sidelines will re-engage.”

The Flexibility Act also made some other changes to the program. If business owners must pay the money back as a loan, they now have five years instead of the original two to do so.

“But here’s the challenge with that,” Deckard said. “Businesses took the loans with the understanding that it was going to be 100% forgiveness. A two-year or a five-year payback is irrelevant if it’s going to be forgiven.”

What’s more, the SBA has yet to open a portal to accept loan-forgiveness applications.

“When you look at the unemployment report, it is having an effect. People are returning to work,” Deckard said. “As envisioned, the program had good intentions. It’s just the complexity and confusion over technical aspects that has been the source of frustration from banks and borrowers.”

Heath agreed, saying the changes made by Congress could have come much sooner. But he’s glad to see that small businesses have bipartisan support.

“We need to help small businesses,” he said. “If we can provide them the support and allow them to survive, they will be the engine that drives this recovery.”