On Saturday July 4, 2020, President Trump signed a new law extending the deadline for applying for a Paycheck Protection Program (PPP) loan from June 30 to August 8. This extension comes on the heels of new Interim Final Rules (IFR) issued by the Small Business Administration (SBA) on June 22, clarifying some issues and attempting to make complete loan forgiveness attainable for most borrowers.
In addition, on July 6, 2020, the SBA and the Treasury Department released the complete database of all PPP loans issued to date—approximately 4.9 million. For loans above $150,000, the data includes company name, address, NAICS codes, demographic information, date the loan was issued, number of employees, and congressional district. For loans under $150,000, the name and address were omitted.
In a July 6 press release issued by the SBA, Treasury Secretary Steven T. Mnuchin stated, “The average loan size is approximately $100,000, demonstrating that the program is serving the smallest of businesses.” He added that, “Today’s release of loan data strikes the appropriate balance of providing the American people with transparency, while protecting sensitive payroll and personal income information of small businesses, sole proprietors, and independent contractors.”
The release of the data came at the behest of many groups and politicians seeking transparency for the $650 billion loan program created under the CARES Act. There is concern among some that the program is subject to widespread fraud and abuse, and they want accountability. Already, many companies receiving negative press coverage and fearing audits and penalties returned $30 billion in PPP funds, although arguably they received them legitimately under the guidelines.
On the other side of the debate are many business groups who want to see a “safe harbor” that all borrowers who received the loans, or at least those under a certain threshold such as $1 million, will receive loan forgiveness for portions of the loan they use according to regulations—60% on payroll and 40% on expenses such as rent, mortgage payments, utilities, and interest payments on loans.
The release of the data caused instant anxiety among borrowers as the data seemed incomplete. After reviewing the data, many companies were reported having none or one employee, even though their loan amounts were over $150,000, signaling many more employees. This raised concerns that inaccurate data would cause audits or adversely impact a review. The reality is the data reflects the input from lenders who were working around the clock to issue the loans as fast as possible and, as per the CARES Act, gave borrowers the benefit of the doubt that the loans were necessary and employees were to be kept on the payroll.
For most borrowers, the inaccurate data will be of no consequence. Businesses with 10 or fewer employees, sole proprietors, or independent contractors will not be the target for harsh reviews or audits, and while those borrowers who received over $2 million in PPP funds have a much higher likelihood of audit, the real targets will consist of fraudsters lying on loan documents.
While the program has been riddled with problems, confusion, and new regulations coming out almost weekly, the reality is, it has had the desired effect of injecting liquidity into the economy and keeping workers on the payroll. While approximately $130 billion remains in the program, necessitating the extension to August 8, the federal government moved at an unprecedented pace and scale on this program. Considering that the SBA issues about 1,000 loans in a typical year, 4.9 million PPP loans in three months is commendable.
The fact that funds remain is the result of a slowdown in applications as many borrowers were concerned that audits would leave them holding a loan they thought would become a grant, or worse, civil or criminal penalties. So, in addition to the extension, the new guidance from June 22 was also meant to assuage the worries of many businesses and increase applications.