The CARES Act created the extremely successful Paycheck Protection Program which has helped small businesses maintain payroll during these challenging times. The U.S. Department of Treasury (Treasury), the Small Business Administration (SBA) and over 5,000 lenders took quick action to launch this program and have provided an unprecedented 4.8 million loans.
However, since its launch on April 3, 2020, the program has gone through many iterations of regulatory guidance creating significant lender and borrower confusion. The Treasury and the SBA have released 21 interim final rules and 47 frequently asked questions over 17 different releases.
The National Federation of Businesses (NFIB), which represents small businesses, reported their PPP webinars have consistently had upwards of 10,000 attendees. Previously, if a webinar received 1,000 attendees, it was considered very well-attended.
Similarly, lenders have expressed grievances. As Eduardo Sosa, an SBA Lending Senior Vice President from Amarillo Bank, stated in his testimony before the House Committee on Small Business on June 17, 2020, “As an experienced lender, I’ve never once fully understood how to make a PPP loan from beginning to end—and still don’t.” Congress has tasked lenders as the conduit for this funding. However, given the changing landscape, lenders are understandably frustrated. As a result of this confusion, lenders are now reticent to underwrite new loans – the opposite of what our economy and small businesses need.
The deadline to apply for the PPP is June 30, 2020, but an additional $140 billion of PPP funds remain unobligated. To ready our small business, lenders and entrepreneurs for learning how to “live with the virus” and move towards reopening, we recommend Congress take action on the following:
- Extend the application date. With the impending June 30, expiration, Congress needs to move the deadline back until at least Sept. 30.
- Clarify the length of the loan term. With the passage of H.R. 7010, the loan forgiveness covered period was extended from eight weeks to 24 weeks. Guidance states a borrower has up to 10 months after the end of those 24 weeks period to submit the loan forgiveness application – which could be as far away as October 2021. That means lenders’ capital could be tied up for a long time.
- Ease the loan forgiveness application. Even though the Treasury and SBA released an updated loan forgiveness form in response to congressional feedback, it is still subjective as to which borrowers qualify. Congress recommended creating a simplified form for borrowers with loans under $350,000. We propose revisiting that recommendation to provide firm clarification. Additionally, it may be beneficial to provide blanket forgiveness for loans with a de minimus loan size like $10,000 or below.
- Authorize $5 billion of the remaining PPP funds to the Community Development Financial Institutional (CDFI) Fund. CDFIs lend to businesses that often have limited collateral or are owned by minorities and other marginalized groups that are often overlooked by mainstream financial institutions. This additional funding will allow for larger CDFI awards, promoting access to capital for small businesses that fuel the economic engine of small towns in rural Arkansas and across the country.
In addition to the PPP, the Economic Injury Disaster Loan (EIDL) program is also flawed in its delivery. The EIDL program is another SBA program that benefits small businesses which has been granted over $70 billion in funding by Congress. It desperately needs significant improvement in the approval process, borrower communication and transparency. Earlier this month, the NFIB reported that only 36 percent of members who applied for an EIDL had received it.
We propose that the EIDL program be moved away from the SBA’s Office of Disaster Assistance (ODA) to the division that manages the Express Bridge Loans and increase the loan limit. Currently, any lender that is an approved SBA 7(a) lender is also approved to provide Express Bridge Loans. The loans allow small businesses to access up to $25,000 while waiting to receive the EIDL. Raising the loan limit to $150,000 and moving the management process away from the ODA could help correct some of the large, programmatic flaws with the current EIDL process and provide the money our florists, daycares, restaurants, hair salons and thousands of other small business owners desperately need.
Let’s keep America moving toward recovery.
French Hill represents the 2nd District of Arkansas and Darrin Williams is the CEO of Southern Bancorp, CDFI headquartered in Arkansas.