SBA and Treasury Announce $10B for CDFI's to Participate in PPP, House Passes PPP Reform Legislation

Yesterday, the U.S. Small Business Administration (SBA), in consultation with the U.S. Treasury Department, announced that it is setting aside $10 billion of Round 2 funding for the Paycheck Protection Program (PPP) to be lent exclusively by Community Development Financial Institutions (CDFIs). CDFIs work to expand economic opportunity in low-income communities by providing access to financial products and services for local residents and businesses. These dedicated funds will further ensure that the PPP reaches all communities in need of relief during the COVID-19 pandemic, a key priority for President Trump.

“The forgivable loan program, PPP, is dedicated to providing emergency capital to sustain our nation’s small businesses, the drivers of our economy, and retain their employees,” said SBA Administrator Jovita Carranza. “CDFIs provide critically important capital and technical assistance to small businesses from rural, minority and other underserved communities, especially during this economically challenging time.”

“The PPP has helped over 50 million American workers stay connected to their jobs and over 4 million small businesses get much-needed relief,” said Treasury Secretary Steven T. Mnuchin. “We have received bipartisan support for dedicating these funds for CDFIs to ensure that traditionally underserved communities have every opportunity to emerge from the pandemic stronger than before.”

As of May 23, CDFIs have approved more than $7 billion ($3.2 billion in Round 2) in PPP loans. The additional $6.8 billion will ensure that entrepreneurs and small business owners in all communities have easy access to the financial system, and that they receive much-needed capital to maintain their workforces. 

PPP was created by the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) and provides forgivable loans to small businesses affected by the COVID-19 pandemic to keep their employees on the payroll. To date, more than 4.4 million loans have been approved for over $510 billion for small businesses across America.

Also on Thursday was the U.S. House of Representatives passage of H.R. 7010, the PPP Flexibility Act, by a vote of 417-1. All 14 Michigan members of the U.S. House voted in support of the legislation. The bill would:

• Reduce from 75% to 60% the portion of PPP funds a business must spend on payroll expenses in order to qualify for loan forgiveness
• Extend the time businesses have to spend PPP dollars from eight weeks to 24 weeks
• Extend the loan maturity period from two years to five years
• Allow businesses that secure a PPP loan to defer payroll taxes
• Extend the rehiring deadline to Dec. 31, 2020

This bill is now being sent to the U.S. Senate for possible consideration. In the Senate, the expectation is leadership will bring PPP reform legislation to the floor soon, perhaps as early as next week, but it’s not known what will be included in the bill.

The chamber could choose to debate and vote on H.R. 7010, although that’s not likely. The more likely scenario is the Senate takes up and votes on their own PPP reform bill. Senators Susan Collins (R-ME) and Marco Rubio (R-FL) had tried to fast-track PPP reform legislation prior to the Memorial Day holiday but that effort stalled.

The Collins/Rubio bill would have extended the covered period from eight weeks to 16 weeks; extended the period businesses have to apply for a loan from June 30 to Dec. 31, 2020; allowed businesses to use loan proceeds to purchase PPE and other items necessary to open safely; and included language to hold lenders harmless for changes in PPP guidance by SBA and the Treasury. Should the Senate balk on passing H.R. 7010, they could choose to revive the Collins/Rubio bill and pass it or seek to advance new legislation.

The Michigan Credit Union League will be monitoring any developments from the Hill regarding PPP reform legislation and efforts to pass a Phase 4 emergency stimulus bill.