PPP loans are designed to help small businesses keep employees on their payrolls during the COVID-19 pandemic, but the program has been plagued by confusion and concerns about accessibility and loan forgiveness requirements.
Difficulty navigating the policy
A survey by the National Federation of Independent Business (NFIB) found that nearly 75% of small business borrowers find the terms and conditions of the PPP loan difficult to understand, with 22% finding them very difficult.
"Resolving the rampant confusion around the SBA emergency loans should be a top concern for policymakers," wrote Siena Harlin, Policy and Communications Associate at J-PAL, offering evidence-based ways to improve the program, such as:
- Offering professional help can increase the successful completion of applications.
- Active outreach to eligible businesses may motivate more applications.
- Simplifying program information and applications may increase responsiveness.
Debate over the forgiveness component
According to Entrepreneur.com, the forgiveness component of PPP is what encouraged many small-business owners to take out PPP loans.
Under the original legislation, PPP borrowers could have their loans forgiven, but only for expenses incurred during the first 8 weeks after the loan was issued. For many businesses, 8 weeks was not enough time. Therefore, bipartisan legislation provided small businesses with greater flexibility in the use of PPP loans with bill enacted into law in on June 5, 2020, by increasing the amount of time that recipients of PPP loans have to spend the emergency funding. Under the new law, the 8-week period was extended to 24 weeks or December 31, 2020, whichever is first.
In addition, the new law reduced the payroll cost requirement to 60% of the loan amount, such that small business owners will be eligible to have more of their PPP funds forgiven in cases where they had higher rent or mortgage payments.
Possible government scrutiny and negative repercussions
The safe-harbor window for companies that may have made themselves vulnerable to unwanted scrutiny from the U.S. Department of Treasury continually widened. Businesses that decide that it was a mistake to apply for and receive a PPP loan, had until mid May to return the money and "be deemed by SBA to have made the required certification in good faith," avoiding possible government scrutiny and negative repercussions.
In addition, a broad presumption of good faith was ultimately extended to recipients of loans under that $2 million threshold.
Nevertheless, publicly traded entities of all sizes, including those whose PPP loans have ranged between $1 and $2 million, have continued to send their remittances back to the SBA.
It was unclear, however, exactly how quickly and expansively the sum total of returned funds would be redistributed to businesses on the waiting list.
Startups did not benefit as much as small businesses from PPP
Most advocates suggest that PPP failed to help startups, arguing that they need more targeted support to survive the pandemic’s economic downturn. Engine, for example, drafted a series of startup-oriented COVID-19 relief proposals—including ideas about government equity investments, more targeted forgivable loan programs, tax credits, and grant opportunities—for Congressional offices to use in further legislative negotiations.
The need for further support
On June 30, 2020, the Center for American Entrepreneurship, the Economic Innovation Group and a coalition of 23 other leading business advocacy groups issued a letter to Congressional leaders calling for a new phase of federal liquidity relief to address the continued challenges facing small businesses due to Covid19.