Most Small Firms That Got Covid-19 Aid Struggle With Loan Rules

Most U.S. small businesses that applied for the main coronavirus relief aid program have now gotten funding after initial delays, but many report that they are struggling with the narrow criteria to turn the loans into grants, a new survey shows.

Almost three-quarters of those who received a Paycheck Protection Program loan found it very or somewhat difficult to understand the terms and conditions, according to a National Federation of Independent Business poll of its members. Nearly half said it would be hard to spend the funds within the eight-week period required by law for the loan to be forgiven. Almost 40% said it would difficult to spend 75% of the proceeds on payroll as required.

The findings may add pressure on Congress to loosen the rules and make loan forgiveness easier for owners who are struggling to keep their business afloat. Efforts are under way in the House and the Senate to amend those criteria, although for now the proposals don’t align and it’s unclear whether the two chambers will come to an agreement.

“Small businesses continue to face many challenges in operating their business in these difficult times,” Holly Wade, NFIB director of research & policy analysis, said in a release. “Congress and the administration have the authority to further lighten the burden for many of their immediate concerns, especially in offering more flexibility for PPP loans.”

Of the 80% who applied for a PPP loan, 90% had funding deposited in their bank account as of May 18, according to the NFIB survey. That’s up from 61% who reported getting funding in a May 1 survey and 20% in April 17 poll.

The latest result is much higher than a separate, larger survey by the U.S. Census Bureau. As of May 16, 75% of small businesses had requested a PPP loan, but 67% had received assistance.

The centerpiece of the $2.2 trillion relief package that Congress enacted in March, PPP allows loans of as much as $10 million that can be forgiven if a business spends proceeds within eight weeks, mostly on payroll.

The loan-forgiveness rules were designed as a stopgap to help small firms keep their workers employed during what was then expected to be a short-term crisis as a result of shutdowns. Two months later, restaurants and other small businesses have said they need more time to spend the funds because they won’t be ready to reopen or be fully functional at the end of eight weeks. Others want to relax the 75% payroll rule so they can use more funds for expenses such rent or utilities.

PPP Bills

Republican Senator Marco Rubio of Florida said he wants the Senate to vote on a bill as soon as Thursday to extend the loan-forgiveness period to as much as 16 weeks, and the House is expected to vote next week on separate PPP legislation that would lengthen the period to 24 weeks and make other changes, including relaxing the 75% payroll spending rule.

Treasury Secretary Steven Mnuchin said Thursday the administration supports extending the eight-week period, which would require action by Congress. But he defended the 75% payroll spending rule, which the administration could change on its own. Speaking at an online event hosted by the Hill newspaper, Mnuchin said the 75% rule matches the intent of the law.

The NFIB survey found that 47% of firms found it very or somewhat difficult to get their employee headcount back to pre-crisis levels, one of the conditions for having PPP loans forgiven. Almost 20% said employees have declined a job offer to return to work because they’re getting getting $600 payments in unemployment benefits.

The survey also showed that 36% of small firms have requested low-interest loans under the separate Economic Injury Disaster Loan initiative, or EIDL, and 76% have sought advances that don’t have to be repaid. Sixty-five percent reported receiving EIDL advance money but only 21% said they’ve gotten loan funding.

The survey was conducted by email on May 18 with a random sample of the NFIB membership database of about 300,000 small businesses owners, with 685 usable responses.

To contact the reporter on this story:
Mark Niquette in Columbus at mniquette@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Cécile Daurat, Tony Robinson

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