Gottheimer, Spanberger, Gallagher, Lead Bipartisan Effort Pressing SBA & Treasury Department to Improve PPP Loan Forgiveness Flexibly for Small Businesses, Provide Additional Guidance on Rehiring

In a letter sent to SBA Administrator Carranza & Treasury Secretary Steven Mnuchin alongside seven of their colleagues, the Members called for the Administration to take immediate steps to address burdensome restrictions on small businesses seeking loan forgiveness through the SBA’s Paycheck Protection Program  

U.S. Representatives Josh Gottheimer (NJ-5), Abigail Spanberger (VA-07), and Mike Gallagher (WI-08) this week led a bipartisan effort urging the U.S. Small Business Administration (SBA) and the U.S. Department of the Treasury to improve flexibility and cut red tape for American small businesses seeking federal assistance and loan forgiveness through the SBA’s Paycheck Protection Program (PPP).  

Just prior to the rollout of PPP last Friday, the SBA introduced guidance that severely restricted non-payroll loan forgiveness for U.S. small businesses applying for PPP loans by explicitly requiring businesses to spend 75 percent of the PPP loan on maintaining payroll in order to receive loan forgiveness—a stipulation not included by Congress in the Coronavirus, Aid, Relief and Economic Security (CARES) Act. According to small businesses owners in New Jersey, Virginia, and Wisconsin, these restrictions place greater stress on businesses with higher non-payroll costs to cover during the coronavirus crisis—such as high rent or utilities payments—and stifle the business owners’ ability to adapt the loans to best suit the challenges faced by their individual businesses.

Additionally, according to current PPP guidance, many small businesses unable to rehire employees by June 30, 2020, could see reductions in their federal loan forgiveness percentage. These additional stipulations could mean the difference between a business successfully reopening or permanently closing its doors, which flies in the face of Congress’ intention in creating this program through the CARES Act.

In a letter sent to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, the bipartisan group of lawmakers pressed the SBA and Treasury Department to rescind burdensome requirements on loan forgiveness related to non-payroll costs. Additionally, they called on the administration to provide additional guidance to borrowers with employees who might not be able to immediately return to their prior employment due to extenuating circumstances caused by COVID-19.

“We were disappointed to learn that, contrary to Congressional intent, the Department of Treasury and the Small Business Administration (SBA) have added stipulations to this loan forgiveness. According to this guidance, not more than 25% of the forgiven amount may be for non-payroll costs and compensation levels of employees must be maintained—rather than the Congressional stipulation of not reducing compensation beyond 25%,” said Gottheimer, Spanberger, Gallagher, and their colleagues. “We ask that you share your agencies’ rationale for including this additional stipulation, and we ask that you rescind this requirement and allow small businesses the flexibility, within the parameters set forth by Congress, to use the PPP loans as necessary to keep their individual business afloat.”

The letter continues, “We also call on the SBA and Department of the Treasury to provide guidance for borrowers that are unable to rehire employees by June 30, 2020. Many small businesses are concerned that, due to the extenuating factors surrounding the pandemic, employees that have been let go will not want to immediately return to their employment. According to current PPP guidance, this would negatively affect a borrower’s loan forgiveness, even though this is a factor outside of said borrower’s control. These small businesses require direction on how to navigate this aspect of the PPP loans, without sacrificing their loan forgiveness.”

The bipartisan letter was also signed by U.S. Representatives Paul Mitchell (MI-10), Kathleen Rice (NY-04), Brian Fitzpatrick (PA-01), Dean Phillips (MN-03), Jason Crow (CO-06), Elaine Luria (VA-02), and Gil Cisneros (CA-39).

Click HERE to read the letter, and the full letter is printed below.

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Dear Administrator Carranza and Secretary Mnuchin,

We write to urge your immediate attention and swift action on an issue that threatens the financial security and longevity of small businesses. 

On March 27, the House passed the CARES Act (PL 116-136), which was shortly thereafter signed into law, to respond to the economic effects of the coronavirus pandemic. As the public health measures necessary to slow the spread of coronavirus are taking a particular toll on small businesses, the CARES Act provides a broad range of assistance to small businesses that might otherwise not be able to survive the impact, including the Paycheck Protection Program (PPP). 

The PPP, found in Section 1102 of the CARES Act, is a $349 billion loan program—managed by private sector lenders but guaranteed by the government—to help small businesses keep afloat during a time of social distancing and mandatory business closures. Under Section 1106 of the CARES Act, the PPP also allows loan forgiveness, making it a lifeline for small businesses around the country. Without this loan forgiveness, the PPP is merely another loan that would save a business now to watch it sink into debt later.

Accordingly, the terms of this loan forgiveness were clearly and intentionally stipulated in the CARES Act, allowing for forgiveness on a covered loan to be equal to the payroll costs plus any payment of interest on any covered mortgage obligation plus any payment on any covered rent obligation plus any covered utility payment. As this loan and the corresponding loan forgiveness was meant to ensure the continued employment of individuals throughout the country, the loan forgiveness stipulations of the PPP state that the amount of the loan forgiven would be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. No other stipulations were named, in order to provide small businesses the flexibility necessary to best weather these trying times.

As a result, we were disappointed to learn that, contrary to Congressional intent, the Department of Treasury and the Small Business Administration (SBA) have added stipulations to this loan forgiveness. According to this guidance, not more than 25% of the forgiven amount may be for non-payroll costs and compensation levels of employees must be maintained—rather than the Congressional stipulation of not reducing compensation beyond 25%. We ask that you share your agencies’ rationale for including this additional stipulation, and we ask that you rescind this requirement and allow small businesses the flexibility, within the parameters set forth by Congress, to use the PPP loans as necessary to keep their individual business afloat.

We also call on the SBA and Department of the Treasury to provide guidance for borrowers that are unable to rehire employees by June 30, 2020. Many small businesses are concerned that, due to the extenuating factors surrounding the pandemic, employees that have been let go will not want to immediately return to their employment. According to current PPP guidance, this would negatively affect a borrower’s loan forgiveness, even though this is a factor outside of said borrower’s control. These small businesses require direction on how to navigate this aspect of the PPP loans, without sacrificing their loan forgiveness.

As a resource for small businesses, sole proprietors, contractors, and the self-employed, PPP loans were meant to both keep workers employed and to address the different context and needs of these businesses. Additional stipulations or insufficient guidance for these businesses means they could be forced to choose between abandoning critical aspects of their business or taking on additional debt that they cannot afford. Forcing small business owners to make this choice could result in these businesses having to close their doors, further feeding into a loss of industry and higher unemployment at a time when Americans are struggling most.

Thank you, Administrator Carranza and Secretary Mnuchin, for your attention to this critical matter, and for the SBA and Department of Treasury’s work to address the economic impacts of this pandemic. Your swift action on this issue will help alleviate the concerns of our nation’s small businesses, which are vital to our country and our communities.

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