May 15, 2020 - Economy & Business

Paycheck Protection Program borrowers get more flexibility

Illustration of Benjamin Franklin wearing a safety vest

Illustration: Aïda Amer/Axios

Federal regulators still haven't provided the required guidance on Paycheck Protection Program loan forgiveness, a scant 18 days past deadline, but it's become less important for the vast majority of small business recipients.

Driving the news: The key buzzword this week was "safe harbor."

  • The Small Business Administration said it would provide safe harbor to all PPP borrowers of less than $2 million, in terms of deeming their certifications to have been made in good faith.
  • In other words, no more need to sweat over whether or not their applications met the "necessity" criteria.

It also extended the "safe harbor" for no-questions-asked loan returns to May 18. This is basically for borrowers of above $2 million, or smaller borrowers who have concerns about their applications other than the aforementioned "necessity" criteria.

  • An SBA spokesperson tells Axios that companies that returned PPP loans are allowed to reapply, so long as they no longer have an active E-Tran loan number.

But back to that lack of forgiveness guidance: It's still a real problem. Not just for larger borrowers, but even for smaller ones that have larger operational expenses than employee expenses.

  • A recent Inspector General report noted that "tens of thousands of borrowers" won't meet the SBA requirement that 75% of PPP loans be used on payroll.
  • Some suggest that this could be why so many small businesses, upwards of 25%, never even bothered applying for PPP.
  • There's speculation that the 75% floor could be lowered in forgiveness guidance, given that it doesn't appear in the actual CARES Act. But at this point it's hard to really know. As one banker said to me: "If you don't like the PPP rules today, don't worry about it because they'll change again tomorrow."

The bottom line: Flexibility for PPP borrowers has increased, particularly as social media attention and political criticism has waned.

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