Hearing Reveals Clues for Additional Small Business Relief

By Elizabeth Sullivan

The Senate Small Business Committee had a never-before-seen visitor yesterday: Treasury Secretary Steven Mnuchin. He joined Small Business Administration (SBA) Administrator Jovita Carranza in testifying before the Committee on the small business programs included in the CARES Act. The hearing revealed a few interesting pieces of information about how the programs have been run, as well as what the future may hold. Here were our team’s top takeaways.

 

1.    Small businesses need additional relief. While we have heard this feedback from small business owners countless times over the past month – we weren’t quite sure Congress got the message. Despite the rule changes made in H.R. 7010, many businesses that received Paycheck Protection Program (PPP) dollars are about to reach the end of their forgiveness portion. Meaning, although there was an extension of the forgiveness timeline to 24 weeks, many businesses planned for the 8-weeks and are about to/have reached the end of their funds. Therefore, another round of layoffs is to be expected this month, as many do not have the cashflow to keep their employees on the payroll. This issue was echoed by Senators on both sides of the aisle during the hearing and even the Treasury Secretary said that yes, there was going to need to be some type of additional support.

When asked by Senator Kennedy (R-LA) if relief for investors such as capital gains tax changes were on the table, the Treasury Secretary gave a lukewarm response and echoed the need to focus on getting people back to work. When further asked if he were “king for a day” what he would do moving forward, Mnuchin said, “I definitely think we are going to need another bipartisan legislation to put more money into the economy.” He suggested three things could be on the table: another round of direct payments to individuals, fixing unemployment, and more money to encourage businesses to re-hire, with targeted efforts to industries that are most impacted by COVID-19 such as  hospitality and tourism.

 

2.  Targeted relief is needed for minority-owned and women-owned businesses. Senator Maria Cantwell (D-WA) and Chair Marco Rubio (R-FL) were among many to call for targeted relief to underserved communities who traditionally struggle to access capital and resources. Senator Cantwell sent a letter to both witnesses, pushing for prioritization of these communities and smaller (10 or fewer employees) businesses in existing relief loans and any future  COVID-19-related assistance. 

 

Senior Committee Democrats Ranking Member Cardin (MD), Senator Coons (DE) and Senator Shaheen (NH) announced their intention to introduce the Prioritized Paycheck Protection Program (P4) Act. The bill authorizes new lending under the PPP to small businesses with 100 employees or less, including sole proprietorships and the self-employed. In order to be eligible, businesses must have already depleted an initial PPP loan or be on pace to exhaust the funding and must demonstrate a revenue loss of 50% or more due to the COVID-19 pandemic. This is a step in the right direction.

 

3.  SBA’s abrupt changes to the EIDL program were not random. SBA Administrator Carranza revealed the math behind the $1,000 per employee cap for Economic Injury Disaster Loan (EIDL) advances and $150,000 loan cap for EIDL loans. Based on the number of applications, SBA calculated that in order to lend to all applicants, these limits were necessary.  Ranking Member Cardin (D-MD) and others pushed her to  explain why she didn’t tell Congress more money was needed to be appropriated. She said in the hearing that all 5.4 million applications will be in the EIDL loan portal by next week. For context, a loan officer in the EIDL program typically processed 3-5 loans a day and now handles 50+ loans a day. “Into the portal” doesn’t necessarily mean all the loans will be approved by next week, but they will be out of the EIDL purgatory and processing will begin. Stay tuned.

 

4.  Changing PPP rules to allow small business owners with criminal records to apply for loans could be coming soon. Current rules on the PPP program from the Treasury Department prohibit business owners with felony convictions or who are currently on parole/probation from receiving PPP loans. In his questioning, Senator Booker (D-NJ) asked if the Secretary would be open to changing the program’s rules. The Senator highlighted his legislation, which has bipartisan support and will remove the ban on individuals with non-financial fraud felony convictions. The Treasury Secretary said rules scaling back the criminal conviction from the past five years to the past three years were going to be published shortly. However, Secretary Mnuchin also indicated that if there was bipartisan consensus, he would open to the change proposed by Senator Booker and others. 

 

All of the Senators gave accolades to the agency leaders and their staffs for implementing these unprecedented small business loan programs. They pushed for more timely responses from the SBA to the Committee. So, the question that remains – will there be further action: what will it look like and when? Committee Members expressed a sense of urgency for additional small business relief. 

 

Our suggestion – make this bill about relief and recovery. Put policy changes in place that will also have a lasting effect on the economy. For example, changes to sole source rules for individually-owned 8(a), WOSBs, SDVOSBs and HUBZone companies that have been passed in the House and were included in the draft Senate SBA reauthorization bill would get help contracts get into the hands of small businesses during recovery and into the future. Additionally, allowing equity investment in 8(a) and WOSB firms could give them a boost of capital to remain sustainable. The clock is ticking, and small businesses need these bipartisan solutions as soon as possible.