Senator Ron Johnson’s April 23rd op-ed was a buzzkill. Even if it has zero chance of being implemented into law. More on that shortly.
Unless you’ve been living under a rock for the past two months, the federal government launched the largest economic stimulus package in history (CARES). Included in that behemoth was the Paycheck Protection Program (PPP), a godsend to small businesses. PPP is a loan designed to keep employees in small businesses on its payroll as opposed to shedding them onto the unemployment rolls. If small businesses kept their end of the bargain for 8 weeks, the loan (with some caveats) would be forgiven. Remember, most small businesses were told to shut down. And even if they could formally remain open, with the COVID-19 pandemic in the background, most small businesses were hemorrhaging cash.
Many healthcare practices took advantage of the offer. Candidly, with the pandemic still in gear, the PPP (rounds one and two) may not be enough. But the program was popular and well-intended.
Back to Senator Johnson’s op-ed:
But the minimal requirements for loan qualification, designed to speed relief, have allowed employers to obtain PPP loans even if they aren’t in financial distress and have no need or intention to lay workers off. Loan applications granted on a first-come, first-serve basis quickly depleted the $349 billion fund, and many deserving small businesses were crowded out, unable to obtain financial relief. On Tuesday the Senate passed a bill that provides another $310 billion for PPP. It places no further limitations on loan forgiveness, and the self-certification of economic harm required by applicants remains a nebulous statement that “current economic uncertainty makes [the] loan request necessary to support the ongoing operations” of the business.
OK, so less than 100% of small businesses needed the help. No surprise that a bill crafted and implemented in a few days didn’t nail down every detail. Some of the details have been filled in by the Small Business Association which has issued a number of rules. Those are mostly clarifications. They do not change the substance of what Congress passed.
Back to Senator Johnson:
It may be too late to limit access to PPP loans to those who truly need to borrow, but it isn’t too late to limit forgiveness. I have begun working on a separate bill to accomplish that objective.
Here’s his plan:
My initial proposal—subject to feedback from my colleagues and the public—would allow no forgiveness for businesses whose 2020 taxable income exceeds that of 2019. Full forgiveness would be available only to those businesses whose 2020 gross receipts are less than 60% of the preceding year’s.
Those in between would be eligible for forgiveness on a sliding scale: 10% of the loan if 2020 gross receipts are 90% or higher of 2019’s; 30% forgiveness for 80% to 90% of 2019 gross receipts; 50% forgiveness for 70% to 80% of 2019 gross receipts; and 75% forgiveness for 60% to 70% of 2019 gross receipts. In no case would forgiveness exceed the loan amount less after-tax income.
Yes, it would be a good idea to get feedback from colleagues and the public.
The proposal is a horrible idea.
The small business community was asked to pitch in. We did. The small business community was told no one knows how long shutdown will last. We understood. The small business community was asked to hang onto its employees in the hopes that the country will be back to business in short order. We did.
This may be an academic discussion as most small businesses will not have revenue in 2020 exceeding 2019. Still, many still standing at year end WILL have revenue exceeding 60% of what they brought in in 2019. Further, most businesses will not know what that number is until the end of this year.
Small businesses signed documents with banks describing the terms. The forgiveness provision was the main reason most businesses kept some or all of their employees during the economic cataclysm. A do-over is unconscionable. The federal government got precisely it wanted. Keeping the published unemployment numbers below that of the Great Depression and avoiding bankrupting the states.
I hope Senator Johnson’s proposal is dead on arrival.
Otherwise, I’d like to get a second chance to pick my PowerBall numbers after they’re announced.
What do you think? Let us know in the comments below…
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