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With less than 24 hours until Election Day, there's one truth that applies to every federal elected official running for re-election, from President Trump to the furthest backbencher in Congress: They failed to produce the economic stimulus that almost everyone agrees is needed, including a second wave of PPP loans.
Why it matters: Coronavirus infections and hospitalizations are rising, including in areas that weren't hard hit earlier. Many small businesses and nonprofits have failed since negotiations began in earnest just before Labor Day, and more will fail as politicians sort through the election debris. This didn't need to happen.
Meanwhile, there is new scrutiny on certain businesses that received the first round of PPP loans, as first alerted to to me via an email from K&L Gates' Rick Giovannelli and Mary Burke Baker.
- Borrowers of $2 million or more soon will be asked by the SBA to complete a new form that is expected to ask about private equity/venture capital ownership, plus information about quarterly revenue and specific COVID business impacts.
- In other words, SBA is interested not only in business conditions at the time of PPP application, but also at what happened after loans were disbursed — including such possible events as dividends and debt prepayment.
- Plus, SBA may ask whether a company had employees or owners with annual comp of $250,000 or more. Per Giovannelli: "This question is not supported by the CARES Act... and may be be based on some sort of assumption that a borrower who could afford to pay such highly compensated personnel such amounts may not have 'needed' the loans. It could signal that forgiveness may be especially challenging for law firms and other professional service firms."
Between the lines: This raises new questions about how SBA and DOJ will determine "good faith," and also if there's potential liability issues for company owners. It also could set some new guardrails for a second round of PPP, were D.C. to get its act together, although expectations are that it would come with lower loan ceilings.
What to watch: How quickly winners are determined, both for president and for Congress, because stimulus talks won't unstick until everyone knows the new math.