Limits of PPP loan forgiveness needs

A store is closed for the coronavirus in Manhattan on April 17.


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Everyone who drafted and supported the Cares Law had the best intentions of providing financial support to individuals, businesses and other organizations suffering during the coronavirus crisis. In a complex economy, such a massive relief program was bound to be far from perfect. As we become aware of the problems, I hope the administration and my colleagues in Congress will work in good faith to address them.

With the rapid rollout of support through the Paycheck Protection Program, it has become clear that access to forgivable loans has not been limited to those who really need it. The PPP was intended to support small employers who would otherwise have had to lay off employees due to loss of earnings from the coronavirus. Keeping employees connected to employers ensures continuity of wages and benefits, and we hope this will help ensure a faster recovery.

But the minimum loan qualification requirements, designed to speed relief, have allowed employers to get PPP loans even though they are not in financial difficulty and have no need or intention to lay off workers. First-come, first-served loan applications quickly depleted the $ 349 billion fund, and many deserving small businesses were squeezed out, unable to secure financial relief. On Tuesday, the Senate passed a bill that provides an additional $ 310 billion for the PPP. It places no additional limits on loan cancellation, and the self-certification of economic harm demanded by applicants remains a nebulous statement that “the current economic uncertainty makes [the] loan application needed to support the business’ day-to-day operations.

It may be too late to limit access to P3 loans to those who really need to borrow, but it is not too late to limit discounts. I started working on a separate bill to achieve this goal.

The Cares Act includes some limits on forgiveness, but in hindsight, that is not enough. Limits are based on costs incurred, employment maintained, and maintenance of salary or wage levels during the eight-week “covered period” following the granting of a loan. As the law is written, a loan can be written off entirely for borrowers who reach these spending and employment levels, even if their business remains strong. These limitations are insufficient and will allow abuse.

I suggest adding discount limits, depending on the repayment capacity. These limits would apply to all loans, including those already granted under the Cares Act.

My original proposal, subject to comments from my colleagues and the public, would not allow any rebates for businesses with 2020 taxable income above 2019. The full rebate would only be available for businesses with 2020 gross revenues less than 60% of the previous ones. year.

Those in between would be eligible for a discount on a sliding scale: 10% of the loan if 2020 gross receipts are 90% or more of 2019; 30% discount for 80 to 90% of the 2019 gross receipts; 50% discount for 70-80% of 2019 gross receipts; and 75% cashback for 60-70% of 2019 gross receipts. Under no circumstances would the cashback exceed the loan amount less after-tax income.

For tax-exempt nonprofits, loan cancellation would be limited based on net assets. No discounts would be available for entities whose 2020 net assets exceed those of 2019 or are greater than double the loan amount. For other entities, loan forgiveness would be based on annual lost revenue using the same percentages as for businesses.

Again, this is a preliminary proposition, which should be evaluated and refined to achieve the goal of limiting the abuse of a well-meaning and much-needed financial support program. Making these limitations on forgiveness retroactive may seem unfair. But businesses and nonprofits that didn’t need this program shouldn’t be rewarded with a loan discount for taking advantage of it.

This abuse needs to be addressed, and it will help the individuals and entities who have suffered the brunt of the economic destruction from the coronavirus.

Mr. Johnson, a Republican, is a United States Senator from Wisconsin.

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