New PPP rules make federal loan program more flexible for Vermont businesses

By Anne Wallace Allen/VTDigger

The popular Paycheck Protection Program (PPP) has been reworked to make it more useful for businesses in sectors like hospitality

Changes to the PPP loan program, originally passed in March as lawmakers and other officials sought to quickly address the needs of businesses closed by the Covid-19 pandemic, were signed into law June 5. The new measure, known as the PPP Flexibility Act or the Flex PPP, addresses many aspects of the loan-to-grant program that business owners — particularly restaurant owners — said made the program unuseable.

One such element was the requirement that businesses spend 75% of their loan on payroll in order to apply to have the loan forgiven. If the business closed, they had to pay their workers their regular salaries nonetheless, even though in many cases workers were able to make more by going on unemployment. Business groups had asked Congress to reduce that to 50%; the measure that ended up before the president for his signature put that amount at 60%, leaving more money available for other expenses such as rent, mortgage payments, utilities, and loan interest.

The new measure also extends the repayment period on the PPP loans from two years to five years. And, importantly, it extends the time period in which businesses can use their funds and still apply for loan forgiveness from eight weeks to 24. Many restaurant owners had said the previous guidelines made it impossible to draw down loans they had received, because they had barely been reauthorized by the state to reopen on a limited basis. Now businesses have through December to spend the money. Businesses had also previously been required to rehire laid-off workers by June 30 to see the loans forgiven; that date is now Dec. 31.

Nearly 4.5 million of the 1% interest PPP loans have been approved nationally. In Vermont, that number was 11,000 as of May 30, for loans worth about $1.2 billion, the Small Business Administration’s Darcy Carter said on a webinar conducted June 5 by the state Agency of Commerce and Community Development (ACCD). Carter, director of Vermont’s SBA office, said some Vermont businesses borrowed as little as $1,000. One received $5 million.

“Every kind of business” got a loan, said Carter, who was encouraging more Vermont business people to apply before the deadline of June 30. “Self-employed, sole proprietors, doctors, dentists, law firms, landscapers, carpentry companies. Don’t feel like it’s not for you, because it is. It’s for you if you’re in business.”

The changes give borrowers relief from some of the most onerous requirements of the PPP, said the National Law Review, which published an analysis June 5. “They also provide borrowers with flexibility to utilize their loan proceeds in ways that make economic sense in light of their individual economic uncertainty caused by Covid-19 and do not overly penalize them for the realities of their situation.”

However, if the business uses less than the 60% of the funds for payroll, it is not eligible for any loan forgiveness under the new rules.

“It’s an all or nothing,” said Tim Kane of Northfield Savings Bank on the ACCD webinar. “Some of the lobbyists are saying the decision was made to pass the bill as is, and fix the mistakes or fix the problems after the fact,” he said. “But as of right now, that’s how we are interpreting it. Will this bill be changed? Will this law change again? Will the rules change again? We don’t have a crystal ball on that.”

There has also been talk of simplifying the loan forgiveness application, which is now a complicated 11-page packet, he added.

It seems unlikely that loan amounts already dispersed will be expanded, said Carter in answer to a question from one of the 110-strong public audience at the webinar. “I’ve seen nothing in the new information that talks to that,” she said. “That’s a frustration for some of the borrowers who felt loan calculation initially short-changed them a bit because the rules weren’t fully out there.”

But “to me, this is the game-changer,” said Leo P. O’Reilly, a South Burlington accountant who works with many Vermont restaurants. “Because now you have an ability to spend the money. You still have to spend the money on payroll, but now you can do it in a way that is consistent with your ability to reopen — as opposed to forcing the payroll to be at a level that is not consistent with your business.”

The federal PPP loans are administered by banks, credit unions, and the Vermont Economic Development Authority, which are all encouraging Vermont business owners to study the new guidelines and take advantage of the loan opportunity.

“Right now, folks just need flexibility and liquidity,” said Austin Davis, the government affairs director for the Lake Champlain Chamber of Commerce. He said he’s not advocating to members one way or another about the PPP program, but is directing them all to have detailed conversations with their lenders.  “Everyone is telling me, ‘We need grants,’” he said of business members. “I think this could help. The 60/40 ratio will allow a lot of that funding to go to overhead, which is really important.”

In the first round of PPP funding, large businesses like national restaurant chains were well-prepared to apply and they did, with the result that $340 billion in PPP loans were committed to borrowers in just 13 days. In the second round, which began April 23, there is still $130 billion available, said Kane. Applications dropped off noticeably this spring as it became clear small businesses couldn’t meet the loan forgiveness requirements.

“I hope it really addresses the concerns that made this program not as attractive to certain segments, especially the service industry,” Kane said. “We anticipate a renewed interest with these changes.”

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