With the Paycheck Protection Program (PPP) set to expire on March 31, lawmakers have struck a deal to extend the program for two months through the end of May. Leaders of the House Small Business Committee, Chair Nydia Velázquez (D-NY) and Ranking Member Blaine Luetkemeyer (R-MO), agreed to the deal today, and the House is set to vote on the extension next week. The House will act swiftly to pass the measure, and aides are hopeful that the Senate will take up the bill by unanimous consent to avoid any time-consuming debate ahead of the planned spring work period.
The need for the legislation became clear after concerns over delays in loan approvals, and also due to the Biden administration’s recent changes to the program rules intended to direct more money to small companies. The Small Business Administration (SBA) has instituted lengthy fraud reviews into the loan application process, causing some banks to stop accepting new applications due to the backlog in reviews. Banks have also expressed concern that they cannot implement revised loan amount formula before the current expiration date. Under the agreement, the application deadline would be extended to May 31 and the SBA would be able to process applications for 30 days after the deadline.
PPP was established nearly a year ago, and was most recently extended by the December relief package to both continue accepting applications from first-time borrowers and to allow businesses who previously received a PPP loan to apply for a second one. The program offers government-backed small-business loans that can be forgiven as long as they are used to cover employee salaries and other approved expenses. Under current law, the last day for SBA to approve funding for SBA loans is March 31, which leaves banks and eligible businesses with very little time to go through the approval process and to get funds out the door. Nearly $120 billion in funding remains in the program, even as many banks have closed their applications for fear of running out of time to meet the March 31 deadline.
Further complicating matters, many businesses were told by lenders that they needed to apply for forgiveness on their first loan before they would be eligible for a second draw. This has created an influx of forgiveness applications to SBA, putting even more strain on SBA’s systems. SBA has only been able to process 36% of forgiveness applications to date, and many forgiveness applications are taking longer than 90 days to process, as was mandated by Congress. Businesses may apply for second draw loans as long as the first draw loan amounts have been spent, but issues such as debt restrictions with creditors may prohibit businesses from applying before a first draw loan is forgiven.
Other challenges to the program include recent changes to program rules that changed the way the self-employed, sole proprietors, and independent contractors can calculate their loan amount. The American Rescue Plan, signed into law by President Biden today, also expanded PPP loan eligibility to small news organizations and some nonprofits for the first time. These affected businesses would likely not be able to benefit from PPP unless the program is extended.
This document is intended to provide you with general information regarding an extension to the federal Paycheck Protection Program. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.