GOP HEALS law gives some businesses a second chance at PPP loans

Cash-strapped entrepreneurs who have taken out a Federal Paycheck Protection Program loan and are strapped for funding can get a second cash injection.

The Senate HEALS Act, the Republican proposal for another round of coronavirus relief funding, includes a measure that would allow some small business owners to borrow a second time from the program.

Meaning. Marco Rubio, R-Fla., And Susan Collins, R-Maine, sponsored the measure, which is dubbed the Ongoing Restoration of Small Businesses and Paycheque Protection Act.

Since the loan window opened on April 3, companies have borrowed some $ 519 billion, or more than 5 million loans, according to data from July 24 of small business administration.

The appeal of the program is that loans are repayable if borrowers spend at least 60% of the proceeds on salary costs. Those who fail may be eligible for a partial pardon.

With the increase in Covid-19 cases and many small businesses Faced with the prospect of further closures after exhausting their first round of PPP funding, a second bite of apple could keep them afloat.

“There are more people in this category: you took out the PPP loan and you are out of money,” said Ed Zollars, CPA at Thomas Zollars & Lynch in Phoenix. “You should be strapped for cash now, unless you’re late.

New conditions

Senator Marco Rubio (R-FL) speaks to reporters as he leaves a briefing for Senators by officials from the Department of Homeland Security, the Federal Bureau of Investigations, the Director of National Intelligence and the National Security Agency on the State of Election Security on Capitol Hill March 10, 2020 in Washington, DC.

Samuel Corum | Getty Images

The Rubio-Collins measure sets conditions for applicants.

For example, they cannot have more than 300 employees and they must demonstrate a reduction of at least 50% in gross revenue in the first or second quarter of this year compared to last year.

Typically, borrowers can receive a loan for up to 2.5 times their average total monthly salary cost in the year prior to the loan, up to a maximum of $ 2 million.

Those taking advantage of a second drawdown of PPP funds are also eligible for loan cancellation for expenses incurred before January 1, 2021. Borrowers must always commit at least 60% of the money for salary expenses in order to get a full cancellation.

The bill also provides for a second round of financing for smaller businesses: $ 25 billion for businesses with no more than 10 employees.

These two changes attempt to keep funding away from companies that do not otherwise match the invoice, as well as crooks. Whether that is enough is another story.

“This thing is rich in fraud if all you have to do is show 50% loss of revenue and you are eligible for more P3s,” said Adam Markowitz, registered agent at Howard L Markowitz PA CPA in Leesburg , in Florida. “It’s going to end up in the hands of the wrong people again.”

Consider that this week the Department of Justice announced fraud charges against a Florida man who allegedly hijacked nearly $ 4 million in PPP funds and used $ 318,000 of the proceeds to purchase a Lamborghini.

The Office of the Inspector General also warned against “serious fears of potential fraud“in another coronavirus loan program, the Economic Disaster Loan.

Nine financial institutions reported a combined total of $ 187.3 million in suspected fraudulent transactions, the inspector general said.

Loans for businesses in troubled areas

Meaning. Rubio and Collins also proposed new terms for the SBA’s main loan program for small businesses to make funds available to businesses in distressed areas.

Businesses located in low-income census tracts, as well as seasonal businesses, may be eligible to borrow up to twice their annual income, up to a maximum of $ 10 million, according to the proposal.

The loans would have a maturity of up to 20 years at an interest rate of 1%. Borrowers could defer interest and principal payments for up to two years, and the SBA administrator would have the power to grant an additional two years of deferral.

Borrowers would have until Dec. 31 to apply, according to the proposal.

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“I think for small businesses the ability to access capital where they would normally have difficulty accessing it, I imagine many would see that as attractive,” said David Herzig, director of private client services. at Ernst & Young.

However, it may be insufficient for entrepreneurs who are reluctant to take on more debt while the economy remains uncertain.

“Even with the loan, if you know you’re not going to survive, the last thing you want is that debt hanging around,” Zollars said. “I won’t be surprised if it doesn’t get a lot of use until people know for sure how Covid-19 is going.”

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