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Loan-Relief Rule Changes Leave Confused Small Businesses at Risk (1)

June 12, 2020, 8:46 AMUpdated: June 17, 2020, 4:04 PM

Marnie Howell thought she did everything right.

As the coronavirus pandemic worsened, she crunched numbers and strategized how to keep her Crystal Lake, Ill.-based flooring company afloat. She ended up applying for a government-backed loan under the Paycheck Protection Program (PPP) in early April, which provided enough to keep her half-century-old company, Howell’s Flooring and More, open.

Over the next eight weeks, Howell spent the money meticulously to comply with the program’s myriad forgiveness requirements. But new conditions for the loans have left Howell and many other companies in the lurch.

“I thought here I did everything I was supposed to do, followed every rule to the ‘T’ to make sure 100% of this loan would be forgiven,” said Howell. “My fear is, as the game changed, and the rules changed, it affected my ability to be 100% forgiven. And in my opinion, that’s not right.”

The original rules established in the CARES Act (Public Law 116-136) required businesses to use the funds within eight weeks of receiving the loan. In order to receive forgiveness for the loan, businesses had to use at least 75% of the loan amount on payroll and payroll expenses like health care.

But a subsequent law (Public Law 116-142) lowered that payroll requirement to 60%, and extended the time period to use the money to 24 weeks or the end of 2020, whichever comes first. The changes were intended to give more flexibility to restaurants and other businesses that haven’t been able to fully reopen.

Guidance Needed

Those changes came right as the earliest loan recipients approached the original eight-week threshold to spend all their loan proceeds. Howell is among them: today marks eight weeks since she received her PPP loan.

Smaller companies that haven’t had issues spending the money hope the government will make it clear that they can still qualify for loan forgiveness using the original calculations. They also would like to be able to apply for loan forgiveness as early as possible.

“If you can’t hire people for various reasons, then you would probably like to have more time,” said Veena Murthy, a principal at Crowe LLP’s Washington National Tax practice. “But if you haven’t had that issue, then you just want this over with.”

The confusion could potentially have negative consequences if companies used the entire amount of the loan in eight weeks, instead of in 24.

“We were big supporters of extending the covered period out to 24 weeks, but we have said throughout the process that if the eight weeks works for you, then the new standard shouldn’t pull the rug out from under you,” said, Charles Crain, director of tax and domestic economic policy at the National Association of Manufacturers.

‘Easy’ Fixes

Crain said all the Small Business Administration or Treasury Department would have to do is issue new guidance that allows companies to elect rules under the original law, such as the eight-week timeframe to use their loans.

He also said he is confident that regulators have heard the concern of small businesses and manufacturers at risk of falling through the cracks. The administration has been widely receptive and flexible with extending deadlines and showing grace to companies during the crisis.

But, Crain added, there is still an unease that new regulations won’t encompass all the flexibility necessary to address the problems.

“I think we’re probably a little more worried that when the SBA is doing the new rule or guidance, that they don’t think through all of these different iterations,” Crain said.

Treasury and the SBA didn’t return requests for comment.

Searching for Clarity

Holly Wade, director of research and policy analysis at the National Federation of Independent Business, said she and her colleagues have been fielding hundreds of emails from small businesses looking for clarity about the changes to how their PPP loan should be used.

“There are so many things to navigate in this program or changes that they need to continually keep up to date with and in how that impacts them specifically—it’s a lot,” Wade said. “Having guidance on these new changes that allow for more flexibility will be hugely helpful.”

The loans have largely served their purpose despite all the problems unintentionally created, Wade said. Many businesses that received a PPP loan have been able to retain employees and prevent permanent closures.

And while the federal government grapples with how to bolster still-suffering businesses, the loans have been a lifeline during a period of enormous stress and uncertainty.

“For how chaotic it started and the how quickly Congress had to design this program, it has been extremely helpful for so many small business owners that needed the financial support,” Wade said.

Grateful, But Anxious

In the north west suburbs of Chicago, Howell said she is extremely grateful for the money that has held over her company while all business dried up.

But the anxiety of not knowing what to do hangs like cloud over the business as the pandemic wears on and lawmakers continue to deliberate on what to do next.

“I would like to just know where I stand,” Howell said. “On the one hand, I’m confident that I’ve done everything I was supposed to do. But I’ve kind of lost confidence in seeing how crazy this is.”

(Updates 10th paragraph to clarify confusion surrounding the loan timeframe, in story originally published June 12. )

To contact the reporter on this story: David Hood at

To contact the editors responsible for this story: Patrick Ambrosio at; Colleen Murphy at