Congress Adds $310B for PPP Small Business Loans

Congress has approved $310 billion in additional funding for an emergency small business loan program aimed at helping employers such as law firms avoid layoffs during the downturn in the economy caused by the COVID-19 crisis.

On April 23, the House voted 388-5 to approve the Paycheck Protection Program and Health Care Enhancement Act. The Senate had approved the measure April 21. President Donald J. Trump is expected to sign the bill into law quickly.

U.S. Treasury Secretary Steven T. Mnuchin welcomed the new funding.

“The PPP, implemented by our partners at the Small Business Administration, has provided assistance to more than 1 million small businesses with fewer than 10 workers,” Mnuchin said in a statement. “The Program is already helping more than 30 million Americans, and with this additional funding, we expect tens of millions more will be able to receive critical relief.”

The PPP program has become the target of increasing criticism after the U.S. Small Business Administration on April 16 announced that the $349 billion originally authorized by Congress had been exhausted and the agency would no longer be accepting PPP loan applications.

Critics contend that many cash-strapped small businesses were denied loans as well-heeled businesses acted quickly to apply for loans in the “first come, first serve” program. Others claim that certain lenders favored wealthier clients in processing PPP loan applications in the rush to obtain loans before funding dried up.

Experts have been recommending that law firms, like other small businesses, should seriously consider applying for the relief under the program in light of its historically favorable loan terms.

However, banking industry groups are warning that much, if not all, of the new money authorized by Congress will be eaten up by PPP loan applications already in process.

The Paycheck Protection Program was created under the federal Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27. Launched on April 3, the SBA program provides small business job-retention loans to pay for eight weeks of payroll expenses and certain overhead to keep workers employed.

Section 1102 of the CARES Act permits the SBA to guarantee 100 percent of loans under the program. Section 1106 of the act provides for forgiveness of up to the full principal amount of those loans.

Generally, small businesses with fewer than 500 employees are eligible for PPP loans. Qualifying nonprofits, sole proprietorships, self-employed individuals, and independent contractors can apply for loans.

The maximum loan amount is $10 million, with a fixed 1 percent interest rate and maturity of two years. The loans do not require collateral or personal guarantees, and the first payment is deferred for six months during which no interest accrues.

Under an interim SBA rule, the loan amount is generally calculated by multiplying the applicant’s average monthly payroll for 2019 by 2.5. The average monthly payroll calculation excludes an employee’s annual salary in excess of $100,000 and includes commissions, tips and benefits such as sick leave and health insurance.

The SBA forgives that portion of a loan used for payroll costs and other designated operating expenses for up to eight weeks from the date the loan is disbursed but only if at least 75 percent of loan proceeds are used for payroll costs. Other expenses eligible for forgiveness include mortgage interest, rent payments and utilities, but payment of those non-payroll costs may constitute no more than 25 percent of the eligible loan forgiveness amount.

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