The Paycheck Protection Program Flexibility Act signed into law on June 5 eases some restrictions—like the spending timeline and parameters—but the adjustments don’t relieve the frustrations lenders and borrowers have expressed about the forgiveness application process.
The bipartisan legislation, introduced by Democratic Rep. Dean Phillips last month , has been eagerly anticipated by the hospitality industry, said Ben Wogsland, director of government relations for Hospitality Minnesota.
“This change is coming a little later than we would have liked for some people,” he said. “This is definitely going to help them in a big big way. It will make it so that more hospitality businesses are actually able to hit the metrics of the programs to be able to get the loans forgiven. That said, there's open questions about how much more relief this industry may need to survive.”
One of the most significant changes to the program? More time to use loans. Initially, small businesses needed to spend the money over an eight-week period, but now, they’ll have 24 weeks, or until Dec. 31, whichever is earlier. The clock starts as soon as the loan is disbursed.
Another major adjustment is changing the amount to be used for payroll expenses from 75 percent to 60 percent for qualifying for loan forgiveness. This increases the amount borrowers are able to use for other eligible business expenses, such as mortgage payments, rent, electric, and overhead. Hospitality industry leaders say it’s a welcome change.
Additionally, the updated legislation includes safe harbors from reduction in loan forgiveness. What’s more, PPP loans made after June 5 can be paid off over a five-year period.
These changes address the problems many businesses with the program, said Nick Place, chief lending officer at Bridgewater Bank.
“It fixed a lot of the broad concerns that people had, primarily just the timing of how long they have to spend the money,” Place said. “Businesses that had been forced to be closed didn't even have the opportunity to hire people back yet. So, due to no fault of their own, they were going to be unable to use the funds.”
The concept of PPP is predicated on the assumption that businesses are able to open and operate, he said. Now as some restrictions are lifting, places like salons, restaurants, and gyms have a better opportunity to use the loans as intended.
“They should be able to use those funds in a manner that allows them to qualify for the most amount of forgiveness possible,” he said.
While the new legislation addresses some of the program’s biggest issues—such as the restricted timeline and payroll percentages—the forgiveness application is still a mess.
“It didn't fix the complexity of the forgiveness process so that it's easier for these businesses to actually apply for forgiveness,” Place said. “The legislation did make the process more flexible; however, that flexibility is just yet another variable that people need to think through, and it's already a pretty complex forgiveness calculation.”
Place said Bridgewater is working on adjusting its internal calculator to create a streamlined process for clients.
Moving forward with the adjustments, he cautioned business owners to be sure they’re making the most of the program as they look to apply for forgiveness.
“I think a lot of folks are going to be anxious to get their application in for forgiveness as soon as possible, but they're going to want to make sure that they are maximizing the amount of forgiveness that's available to them. And that may involve waiting an extra month or six weeks and incurring more eligible costs before they submit for forgiveness, so that they're able to maximize the amount that they have forgiven,” Place said.
For loans under the $1 million category, the U.S. Small Business Administration is working on a simplified loan forgiveness application, said Rob Scott, Great Lakes regional administrator for the SBA.
So far, Minnesota has netted a total of $11,049,841,947 of the PPP funds. This places the Land of 10,000 Lakes in the middle of the pack compared to other states in the Great Lakes Region, which encompasses Minnesota, Illinois, Wisconsin, Michigan, Ohio, and Indiana. Illinois has been approved for the highest dollar amount at $22,040,194,873, and Indiana the lowest at $9,368,437,645.
Nationally, more than 4.5 million PPP loans have been approved for a total of $511 billion. Remaining unappropriated funds amount to $135 billion, Scott said.
“We are doing everything we can from the small business perspective certainly to prop up communities. We know that small businesses are the lifeblood of our communities––our economy is dependent on it,” Scott said. “So we want to do our part to help anyone and everyone to get through this pandemic.”
Many businesses that were closed or partially closed due to state restrictions and precautions are beginning to open. Prolonging the program’s spending timeline gives those businesses a chance to spend the funds in a way that makes them eligible for loan forgiveness.
But some businesses have already used the majority of their PPP funding, and the road forward isn’t totally clear.
When she closed her doors and switched to delivery and takeout only, Tracy Singleton, owner of Birchwood Cafe, had to lay off over 50 of her employees, operating on a skeleton team of six people.
“Then we got some PPP funding. And so we tried to bring as much staff back as we could,” she said.
But with sales down over 60 percent, she didn’t need quite as many. Plus, she had to follow proper precautions and social distancing guidelines.
“We were very challenged to make the best use of the payroll protection plan,” Singleton said.
In using the PPP funding to bring back staff and expanding hours and offerings, Singleton hoped that would bring revenue up to a level that would support the payroll. But the sales have not increased enough, and she is looking at making layoffs again once the loan runs out.
“I know that the changes just passed extend the payout period from eight weeks to 24, and also changed the percentage from 75 to 60 for what needs to be spent on payroll,” she said. “I'm not sure if those will be useful for us right now.”
She knows some businesses that received PPP money and didn’t use it because of the restrictions, and planned to give it back and apply again.
Until the legislation passed, Stephanie Shimp, cofounder of Blue Plate Restaurant Co., said her company was looking at potentially having to give back the PPP funds.
“We were hopeful,” she said. “It was well intended, and I think it was really designed for people like us, but without being open for business and having revenue, it was really difficult to use.”
Getting in on the first round of funding, Blue Plate received the full amount of the PPP loan it applied for.
“My business and our industry as a whole, I think was getting to that code red status where if we weren't going to see changes in the program soon, a lot more businesses were going to fail. And mine would have likely been one of them,” Shimp said.
But the Flexibility Act has given the company renewed hope.
“It gives us a chance. The way that it was originally intended PPP was looking more like an anchor than a lifeline,” she said. “And now it's starting to look like a lifeline.”
The legislative change making the biggest difference for Blue Plate is the longer run time, so that Blue Plate’s restaurants have the chance to actually open up, hire people back, and produce some revenue. Adjusting the percentages needed to be dedicated to payroll also helps the company, she said.
“I was really worried that we might not survive. Hospitality in particular has very razor thin margins and none of us can take on extra debt. If PPP were to convert to debt, and not be forgiven, there's no way I could take it on,” Shimp said.
Before the adjustments to the program requirements, she said she had been on the verge of watching 27 years of her life’s work vanish.
“I'm sure it was just impossible to get every single detail right and get it out as fast as they did,” Shimp said. “They did the best they could under the circumstances. I think they knew that it needed to be fixed––I'm just glad that they finally got it done.”
And while the PPP funds give Blue Plate the ability to continue, no one is in the clear yet.
“Without this, we don't have a chance. Our revenue is down substantially. I mean, on a good day we're doing 18 percent of former year revenue, on a bad day we're doing 4 percent. Now, no one can make it under those conditions with the kind of rent we're paying and the debt we have,” she said.
Going forward, Shimp says there will need to be a collaborative effort from businesses, banks, and landlords to help small businesses survive.
“Everyone's going to have to give a little,” she said.