By Rebeca Romero Rainey
While Congress is fast-tracking the next stimulus package to combat the economic impact of COVID-19, problems with existing recovery programs remain unaddressed.
The Biden administration’s House-passed plan includes $1.9 trillion for another round of direct stimulus payments, vaccine funding, and more. But due to the use of the budget reconciliation process to expeditiously pass this legislation unaltered, needed updates to the nearly year-old Paycheck Protection Program (PPP) for small businesses will need to be addressed separately.
Paycheck Protection Program
Implemented early in the pandemic, the Small Business Administration program provides loans to small businesses that retain their workers and uses federal funds to pay back the loans. The PPP has gone through several rounds over the past year, resulting in hundreds of billions of dollars in emergency small-business loans that have saved tens of millions of jobs.
As the nation’s leading small-business lenders, community banks have proudly led the way in making PPP loans to help sustain local businesses during the pandemic shutdowns. However, lenders and borrowers have faced various challenges with the program. The current version — which is designed to support businesses that have previously received program loans as well as those applying for the first time — is no different.
Making it work
Community bankers and their small-business customers have run into four key issues with the latest iteration of the PPP that are limiting the effectiveness of the program.
- First-Draw Increase Eligibility: Borrowers cannot apply for a loan increase if their loan has already been forgiven, even if they otherwise qualify. This policy merely punishes borrowers who filed for forgiveness early. Congress should amend the program to allow these borrowers to receive a loan increase.
- Second-Draw Use of Proceeds: Borrowers who haven’t used all of the funds from a first loan for eligible purposes are shut out of receiving a second loan, even if they’ve repaid the remaining balance. With many businesses struggling to navigate this complex relief program, Congress should establish a level of spending on ineligible expenses that would not disqualify borrowers from receiving a second loan.
- Farm Partnerships: Current law allows certain self-employed farmers and ranchers to use a loan calculation method that qualifies them for a larger loan under the program. However, this method is not available to thousands of self-employed farmers and ranchers whose businesses are organized as partnerships. Congress should direct the SBA to provide these farmers and ranchers with equitable access to funding.
- Save Our Stages Program: Live-action venues eligible for grants under the separate Save Our Stages program should be allowed to apply for PPP loans while waiting to find out if they will receive a grant. If such a venue eventually does receive a grant, the amount of the grant could be reduced by the amount of the PPP loan to avoid double-dipping.
To help community banks continue leading the economic response to the pandemic, Congress should also extend relief from certain regulatory restrictions. Lawmakers can extend the limited regulatory, capital, and accounting relief implemented in the CARES Act without compromising safety and soundness in the banking system.
Collective action
Community banks have made the majority of PPP loans — saving more than an estimated 33.7 million jobs — due to their commitment to local communities and businesses. Their individual actions are collectively national in scope — touching virtually every community in every corner of the nation.
While Washington advances the latest stimulus package, it should take the opportunity to make necessary changes to existing emergency programs to ensure they are working as intended for small businesses nationwide.
Rebeca Romero Rainey is the president and CEO of the Independent Community Bankers of America.
