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Biden tweaks PPP rules in attempt to reach smallest companies

President Joe Biden spoke about the American Rescue Plan and the Paycheck Protection Program (PPP) for small businesses in response to coronavirus, in the Eisenhower Executive Office Building in Washington, D.C., on Monday.
President Joe Biden spoke about the American Rescue Plan and the Paycheck Protection Program (PPP) for small businesses in response to coronavirus, in the Eisenhower Executive Office Building in Washington, D.C., on Monday.SAUL LOEB/AFP via Getty Images

WASHINGTON — The Treasury Department announced Monday that it will make targeted changes to its Paycheck Protection Program pandemic relief loans in an attempt to direct more funding toward the smallest of small businesses.

Among other changes to the loan program, businesses with more than 20 employees will be shut out of the PPP for a two-week period starting Wednesday, officials said.

The Biden administration has not said whether it will seek to extend the program after the current tranche of funding expires March 31. But Monday’s announcement signaled that the Treasury Department will continue to support the program at least in the short term, while instituting relatively minor changes designed to tame its excesses.

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In a news conference Monday, President Biden criticized the PPP’s early rollout for privileging those with banking connections at the expense of the smallest borrowers.

“When the Paycheck Protection Program was passed, a lot of these mom-and-pop businesses got muscled out of the way by bigger companies that jumped in front of the line,” Biden said, adding that the new rules are meant to make sure the program “looks out for mom-and-pop businesses even more than it already has.”

Biden did not say whether his administration would seek additional funding for the PPP, opting instead to pitch the American Rescue Plan economic stimulus package his administration is proposing.

“The program ends at the end of March, but for the next two weeks, the only folks who can apply for that PPP money are businesses with fewer than 20 employees,” Biden said.

The Paycheck Protection Program is a subsidized loan program meant to see small businesses through temporary closures and revenue shortfalls caused by the coronavirus pandemic. It offers loans at an interest rate of 1 percent that can later be forgiven. It was designed to incentivize small-business owners to keep paying their employees temporarily rather than furlough or fire them.

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The program became a central component of the Trump administration’s efforts to resuscitate a business community that was shellshocked by sudden closures across the United States starting in March of last year.

It contributed to a surprise drop in the unemployment rate over the summer, but its limitations became clear when many recipients conducted mass layoffs as soon as their loans expired.

A new release published Monday by the Small Business Administration credited the Biden administration with several improvements to the loan distribution. The release noted that the share of funding that went to businesses with fewer than 10 employees jumped nearly 60 percent in the third round of PPP funding that opened a month ago. The release also pointed to sizable increases in the share of funds going to rural communities and Community Development Financial Institutions, which tend to serve lower-income and minority communities.

However, those improvements may have been caused by an SBA decision to conduct a phased rollout that gave CDFIs a first crack at distributing the funds. That phased rollout was announced about a week before Biden took office.

Republicans who have supported the program since its inception highlighted the progress that has already been made in issuing loans to minority-owned businesses. Senator Marco Rubio, Republican of Florida, who has been an outspoken advocate for the PPP since last April, encouraged the White House to work closely with Congress as it considers further changes to the program.

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“No other federal relief program has done more to help our smallest businesses, especially those in underserved and under-banked communities,” Rubio said in a statement. “I urge the Biden administration to work with Republicans and Democrats in Congress as it considers changes to this incredibly successful and overwhelmingly bipartisan program.”

The program also drew controversy for its exceptionally broad eligibility criteria, which allowed publicly traded companies, fast-food restaurants, and an array of questionably small or otherwise wealthy businesses to benefit from funding. After loan-level data was released in full ― which did not happen until after the 2020 election because the Trump administration sought to avoid disclosing most of the data ― it was revealed that more than half of PPP funding before December went to just 5 percent of the recipients.

Aside from shutting out the larger firms, the Treasury Department announced Monday that it will permanently change the loan calculation formula it applies to independent contractors such as Uber drivers and real estate agents, some of whom received minuscule amounts of money under the earlier rules. The new rules are designed to increase their payouts.

The Treasury Department also plans to change its application procedures to make it easier for noncitizen business owners to receive loans. It will eliminate rules that shut out borrowers with past felony convictions and people who have defaulted on student loans, changes that were spelled out in the most recent bipartisan relief bill.

Although small businesses still have another five weeks to apply for PPP loans, the changes announced Monday may ultimately have a relatively small impact on the program. Those with more than 20 employees have already had more than a month to apply for another loan, and many did so.

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The loan program has approved roughly 6.8 million loans worth about $648 billion since it started in April.

Since the third round of the Paycheck Protection Program began in mid-January, about 1.8 million loans adding up to $133.5 billion had been approved as of Friday, according to data maintained by the Small Business Administration. Most of them were “second-draw” loans given to businesses that already received loans last year.

Sam Sidhu, vice chairman and chief operating officer at Pennsylvania-based Customers Bank, said Monday’s PPP update may be the biggest change the program has seen since it first rolled out in April, although he praised the government’s attempts to refocus on small and minority-owned borrowers.

He likened the changes to “changing the wings while the airplane is flying,” adding that his team is scrambling to figure out how to integrate census tract data into its application processes. There is a concern that the added complexity could cause some lenders to step back from the program.

“I am concerned that some banks may take their foot off the gas because it’s very difficult to change your application for your intake process, retrain all of your loan officers, which may be thousands,” Sidhu said.

Ashley Harrington, director of federal advocacy for the Center for Responsible Lending, said the decision to strike student loan defaults from the list of PPP disqualifiers would go a long way toward helping people of color who are heavily impacted by a student debt crisis.

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“Business owners who are already bearing the burden of debt created by federal policies should not be subject to additional challenges to getting the relief they need,” Harrington said.