Around the country, small businesses are still struggling to survive, despite many states partially reopening. And a bloom of coronavirus cases nationwide ensures that the economic recovery will take a longer time than some economists thought.
Therefore, when U.S. lawmakers return to Washington this week, one of the critical questions they face is whether to give more financial assistance to small businesses that are short of cash and don’t have enough revenue coming in to pay their workers.
The Trump administration favors a second round of Paycheck Protection Program loans to certain businesses that have been hardest hit by the COVID-19 recession.
At a House of Representatives’ small business committee hearing on Friday, Treasury Secretary Steve Mnuchin said the remaining $130 billion in the program could be “topped up” with additional funds. But Mnuchin said there should be a revenue test for businesses that receive a second payment to “make sure that money is going to businesses that have significant revenue declines.”
Mnuchin also said that lawmakers and the administration should consider providing blanket forgiveness for the smallest loans, while ensuring there’s some type of safeguard to protect against fraud.
The call for restrictions comes amid criticism that in the first round of PPP loans many organizations that didn’t need funds received loans. The PPP’s first round allowed business applicants to certify their own eligibility. Under current rules, PPP loans will be covered by taxpayers as long as companies spend more than 60% of funds on payroll and meet other criteria.
Information on borrowers released on July 6 showed “a long list of lobbying firms, political consultants, and private equity-backed ventures that have received PPP funds,” according to S&P Global Market Intelligence.
A bill introduced in both houses of Congress in June, the Prioritized Paycheck Protection Program (P4) Act, would allow businesses with fewer than 100 employees to apply for a second loan if they have used up (or are on pace to exhaust) their first PPP loan and can show a 50% loss in revenue due to the COVID-19 pandemic.
The P4 bill would set aside the lesser of $25 billion or 20% of PPP funds for employers with fewer than 10 employees and businesses in underserved and rural communities. The loans would not be available to public companies.
Demand for the first round of PPP loans has tapered, according to data from S&P Global Market Intelligence. About 4.2 million loans had been approved as of May 8, and another roughly 650,000 small businesses got loans through June 30, the initial deadline for applications. An additional 27,763 loan approvals were granted through July 13, following an extension of the application period through August.
The average loan size in the first round of funding was $206,000, said S&P. In the second round through June 30, it was about $56,000.
Bankers are profiting widely from the program. Through June 30, the program was poised to generate $18 billion of fees in total. “More than 30 banks could earn as much from emergency small-business loans as they reported in net revenue for all of 2019,” said S&P.
JPMorgan Chase has issued the most PPP loans out of any bank — $28.8 billion, said S&P. That could yield the bank $863.9 million in fees.