On Thursday, the U.S. House of Representatives overwhelmingly passed the Paycheck Protection Flexibility Act, H.R. 6886 filed by Rep. Chip Roy (R-TX) and Rep. Dean Phillips (D-MN). The legislation aims to give small businesses flexibility in the rules they must follow to have their loans forgiven.
The legislation made significant changes to the Paycheck Protection Program (PPP), a fund designed to keep small businesses afloat in the wake of the COVID-19 pandemic.
The legislation will:
1. Allow forgiveness for expenses beyond the eight-week covered period. The eight-week timeline does not work for local businesses that are prohibited from opening their doors or those that will only be allowed to open with restrictions. Businesses need the flexibility to spread the loan proceeds over the full course of the crisis until demand returns. Otherwise, employees will simply be furloughed at the expiration of the eight weeks. The goal is for employers to be able to keep their employees on the payroll, not furlough them without pay or terminate them entirely.
2. Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds. In order to survive, businesses must pay fixed costs. The PPP loans require that 75% of the loan go to payroll. For many businesses, payroll simply does not represent 75% of their monthly expenses, and 25% does not leave enough to cover mortgage, rent, and utilities. Retaining employees is not possible if a business cannot retain their physical location.
3. Eliminate restrictions that limit loan terms to two years. According to the American Hotel and Lodging Association, full recovery for that industry following both the September 11, 2001, terrorist attacks and the 2008 recession took more than two full years. This is the same for many other industries. If the past is any indication of the future, it will take many businesses more than two years to achieve sufficient revenue to pay back the loan.
4. Ensure full access to payroll tax deferment for businesses that take PPP loans. The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis. Receiving both should not be considered double-dipping. Businesses need access to both sources of cash flow to survive.
5. Extend the rehiring deadline to offset the effect of enhanced Unemployment Insurance. To receive loan forgiveness under PPP, a business must rehire employees by a deadline of June 30, 2020. However, the enhanced Unemployment Insurance created through the CARES Act is higher than the median wage in 44 states. Many businesses have reported an inability to rehire employees because they are making more on Unemployment than they made working. To mitigate this unintended consequence, the deadline to rehire employees under PPP should be extended to align with the expiration of enhanced Unemployment Insurance.
COVID-19 has devastated our regional economy, forcing the closure of hotels and the cancellations of many meetings, conventions, and leisure travel; the complete or partial closure of hundreds of small and large businesses; and the overall slowdown in economic activity. The PPP has been instrumental in helping small businesses across the state and in San Antonio keep their doors open.
Your Chamber submitted a letter of support for the bill prior to a vote on the floor. Earlier this week the Chamber’s Public Policy Council hosted Rep. Roy’s office to lay out the bill and give members an opportunity to ask questions and provide feedback.
“Small businesses are the backbone of our economy. Unfortunately, for many of these business owners, the terms of the loan were too rigid and have created uncertainty. This is particularly the case for restaurants, hotels, and those in the hospitality industry,” said President and CEO Richard Perez.
When the CARES Act created the PPP, many small businesses were eager to participate due to a dire need for liquidity and the likelihood of loan forgiveness. Unfortunately, the PPP has become impracticable for many small businesses due to extended government closures, a prolonged recovery process, and severely diminished capacity. H.R. 6886 will provide the flexibility necessary for small businesses to get through these uncertain times.
Rep. Thomas Massey (R-KY) was the only House member to vote no on the bill. The bill passed with some Democratic members voting on behalf of colleagues in a vote-by-proxy process brought on by the COVID-19 pandemic. The bill now moves to the Senate, where Roy has said he expects it will pass.
