Treasury Secretary Steven Mnuchin insisted his department wants to forgive Paycheck Protection Program (PPP) loans as soon as possible, and that he has no intention of seeking repayment from legitimate borrowers.
“I think the majority of this money is going to be forgiven in the next few months, and that’s our intent,” Mnuchin said at a June 10 Senate Small Business and Entrepreneurship Committee hearing.
Sen. John Kennedy, R-La., said Treasury must “articulate to the businesspeople who are out there, the federal government is not looking to . . . catch the banks or businesses that took this money in a minor mistake, so the [forgivable PPP loans] can be turned into loans” that must be repaid.
The PPP has distributed more than 4.5 million forgivable business loans equivalent to $500 billion since passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) two months ago, according to committee Chair Marco Rubio, R-Fla. The loans are supposed to be fully forgiven as long as at least 60 percent of them are used for payroll.
The Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142), signed by President Trump June 5, gives businesses 24 weeks, instead of eight, to spend their loan, and also creates a safe harbor if companies can’t hire back all their workers because of safety restrictions, Mnuchin noted. “With the new legislation, with the safe harbor, it’s going to be even easier” to forgive PPP loans, he said.
Mnuchin also confirmed for Rubio a joint statement he made earlier the week of June 8 with the Small Business Administration that PPP borrowers who fail to spend at least 60 percent of their loan on payroll costs can still get partial forgiveness on the loan.
Rubio noted that the average PPP loan is down to $112,000, which he estimated means the average borrower employs about 10 people. “We’ll know when the forgiveness [requests begin] to come in,” as early as this month, “but this is equal to 50 million jobs,” Rubio claimed.
Small Business Anxiety
Rubio said a National Federation of Independent Business survey found that 77 percent of members had applied for PPP loans, and 93 percent of applicants had been approved.
SBA Administrator Jovita Carranza told the committee that the PPP still has about $130 billion available for small businesses in need.
Yet committee members said their constituents are anxious and skeptical that the government will write off billions of dollars in emergency PPP stimulus and not try to recover some of the money.
Sen. Mitt Romney, R-Utah, asked that Treasury avoid becoming “sticklers” when reviewing PPP loan forgiveness requests. Many small businesses have encountered difficulties rehiring laid-off staff, who may have moved on to new jobs, relocated, or decided to stick with unemployment compensation, he said.
On the other hand, Romney said, some PPP borrowers took loans despite keeping their full staff and suffering no revenue loss through the spring coronavirus shutdowns. The PPP loan application stipulates that businesses whose revenues are unaffected by the emergency shouldn’t qualify for forgiveness, he noted.
Mnuchin noted that Congress considered a revenue test for PPP loans and rejected it. Treasury expected businesses to “self-select appropriately,” and only apply for PPP funds if they needed them, but those hopes were dashed when some large public companies and sports teams were revealed to have been approved, he said. Treasury has recovered about $12 billion from those businesses so far, he added.
Treasury calculated that 98 percent of PPP borrowers would be small businesses with less than about $2 million in revenue, Mnuchin said. The 2 percent of larger loans will be reviewed, and a more general audit to detect fraud will be undertaken later, he said.
More Help Needed
Mnuchin hailed the “unprecedented” bipartisan cooperation that led to passage of the CARES Act and other coronavirus emergency legislation — but warned that he expects more relief will be necessary.
“We are well positioned for a strong phased reopening of our economy,” Mnuchin said. The U.S. Chamber of Commerce said June 3 that 79 percent of small businesses are at least partially reopened, and half of those still closed plan to reopen soon, he said. The NFIB survey said 73 percent of its members rehired or retained workers because of the PPP, he added.
U.S. Bureau of Economic Analysis data updated May 29 showed the personal savings rate hit a record-high 33 percent in April, “indicating that people have built up cash reserves during the pandemic and will be in a position to resume consumer activity as businesses reopen,” Mnuchin said.
Nevertheless, Mnuchin said, “I definitely think we are going to need another bipartisan legislation to put more money into the economy,” although Treasury also wants to assimilate data from the distributions to date.
“I also think we need to be much more targeted at this point,” Mnuchin added. Distressed large businesses, and those having special difficulties reopening — such as hotels and restaurants — should be considered in the next round of congressional relief, Mnuchin said.
“Whatever we do going forward needs to be much more targeted, particularly to the industries and small businesses that are having the most difficulty in reopening as a result of COVID-19.”
There’s hardly a moment to lose, said Sen. Jean Shaheen, D-N.H. Some of the 22,000 Granite State businesses approved for $2.5 billion in loans are already running out of money and preparing to apply for forgiveness, she said. Tourist and hospitality businesses are worried they’ll have to lay off the same workers that the PPP loans were meant to support, she said.
Mnuchin said, “There’s no question that small businesses in many industries are going to need more help,” including financial incentives, to reopen.
“For some of these small businesses, we don’t have extra time,” Shaheen said.