WASHINGTON—The Trump administration has updated guidelines for forgiving federally backed loans to help small businesses survive the coronavirus outbreak—but they don’t address some stickier issues plaguing lenders and borrowers.
The new rules, released by the Treasury Department and Small Business Administration late Friday, warned businesses and lenders that it may review Paycheck Protection Program loans “of any size at any time in SBA’s discretion,” signaling an intention to closely monitor how businesses spend funds from the $660 billion program.
The SBA also said the borrowers must retain their PPP documentation for six years after the loan is forgiven or paid in full, indicating that a review could come at any point over that time, lawyers at the Tennessee firm of Chambliss, Bahner & Stophel wrote in a note Saturday.
The revised guidelines also require companies seeking loan forgiveness to alert state unemployment offices if workers refuse their requests to return to work—a common problem because of the generous terms of the current unemployment benefits.
The guidance says that businesses won’t be subject to a reduction in the amount of loan forgiveness in situations where employees refuse to return to work.
The latest regulation largely confirms the information provided with the forgiveness application form the SBA unveiled on April 16, but provides further clarification on how to calculate payroll and non-payroll costs to fill out forgiveness documents.
Notably, the guidance didn’t change a requirement that 75% of loan funds be spent on payroll to receive loan forgiveness, which was never mandated by Congress. Owners of restaurants, hair salons and other businesses have said they want more flexibility with loans because they still have to pay rent and overhead costs despite having been closed for about two months.
The guidance also failed to clarify who exactly are eligible for the program.
The $670 billion Paycheck Protection Program, part of the $2 trillion coronavirus stimulus bill, requires applicants to certify that the funds are necessary due to the current economic uncertainty and business activity, as well as a lack of other sources of funds to support their operations.
That requirement was added amid an uproar over public companies such as
receiving large loans while smaller firms waited in line. Unsure of their eligibility based on that language, many businesses have returned funds or kept them untouched.
“Neither document discusses or explains the uncertainty around loan eligibility created by (the earlier requirement) despite many borrowers anxiously seeking additional information,” lawyers at Chambliss, Bahner & Stophel wrote.
Businesses owners had waited for weeks to receive detailed instructions on the terms and procedures for turning PPP loans into grants—a process that effectively forgives the debt. That critical information is needed to determine whether to use the program, and, if so, exactly how to spend the funds.
The latest guidance, posted around 11 p.m. Friday before the Memorial Day weekend, is the 14th “interim final rule” the administration has issued on the program since March 27, when President Trump signed the law that established it. The legislation required the SBA to issue guidance and regulations on loan forgiveness by April 26. Officials say they have provided information on forgiveness through previous guidances.
“This is a reasonable and prudent clarification meant to further ensure taxpayer dollars are being used for the appropriate purposes with PPP,” an SBA spokesman said.
The regulation comes as Congress prepares to make significant changes to the program to address shortcomings that have grown more acute as business shutdowns to fight the coronavirus outbreak drag on. The Senate adjourned Thursday after being unable to finalize a deal to extend the amount of time companies have to spend the loans and to extend the program’s duration to Dec. 31 from June 30.
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