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Proposals to address COVID-19 Economic Crisis include key fixes to PPP and Bold new RESTART Program to Support Businesses in the Second Half of 2020

On Tuesday, U.S. Senators Michael Bennet (D-Colo.) and Todd Young (R-Ind.) announced two new proposals to support the small- and mid-sized businesses most affected by the coronavirus (COVID-19) crisis. The Bennet-Young plan includes a new RESTART loan program to provide funding to jump-start the hardest-hit companies for the remainder of 2020 and provide loan forgiveness as a backstop against ongoing difficulties. It would also make enhancements to the Paycheck Protection Program (PPP) to support restaurants and other deeply affected businesses.

Senator Michael Bennet (D-Colo.) and Todd Young (R-Ind.) speaking at an earlier bipartisan press conference in May 2019.

“With a simple change to the Paycheck Protection Program – doubling the amount of time hard-hit businesses have to deploy their funds – we can help restaurants, gyms, mom-and-pops, and other Main Street businesses weather these difficult times,” said Bennet. “At the same time, we need a long-term strategy to help businesses ramp back up in the second half of the year and provide some assurance they’ll be able to survive the uncertainty they face.”

“Our new RESTART Program will provide flexible funding with a longer repayment period to Main Street businesses that took a big financial hit,” added Bennet. “So they can relaunch and rehire their workers when it’s safe to do so.”

Young said that while the Paycheck Protection Program is working for many small businesses, “We know more needs to be done. The RESTART Act will go a step further by helping to provide longer-term loans to businesses and nonprofits that are experiencing economic hardship due to the coronavirus pandemic. Millions of Americans have lost their jobs, and our goal is to revitalize the economy and get them back to work as quickly as possible.”

Proposal for Near-Term Fix to PPP for Hardest-Hit Businesses:

PPP has an 8-week “covered period” that begins immediately following the origination of a PPP loan. As funds were limited, and there was much uncertainty, businesses rushed to apply and were unable to adjust the timing of their application to a point when they were actually prepared to relaunch their business. Payroll during this eight-week period is used to determine what amount of loan forgiveness a business receives.

Businesses are also required to rehire their full headcount by June 30, 2020, regardless of whether their business is back up to anything near full capacity. Businesses that have already laid-off employees are having difficulty rehiring. Some businesses may be shuttered for most or even all of the eight-week period and may even be prohibited from operating at anything near full capacity by June 30, making the decision the rehire employees for a short time frame even more difficult.

Proposal: Bennet and Young propose a simple fix to address a shortcoming of the PPP for many of the most-affected businesses: extend the eight-week covered period to deploy PPP funds and earn loan forgiveness to 16 weeks after the loan is disbursed for the hardest-hit businesses that have seen revenues decline by at least 25%.

Proposal for Longer-Term Strategy: The RESTART Program:

The PPP has worked well for some businesses but is often less effective for the businesses that should be receiving the most assistance – the smallest businesses or those who have seen revenues decline the most. Its limited duration will also leave many of the most-affected businesses without support in the difficult months ahead.

Bennet and Young propose a new RESTART Program to provide funding to cover the next six months of payroll, benefits, and fixed operating expenses for businesses that have taken a substantial revenue hit during the COVID-19 pandemic. A share of that loan will be forgiven based on the revenue losses suffered by the business in 2020, and the remainder can be repaid over seven years, with no interest payments due in the first year and no principal due for the first two years. This program is designed to provide small- and medium-sized businesses with loans to get their businesses going again and ensure that they receive loan forgiveness to help fill in a loss in revenues. 

Loan Terms/Amount/Eligibility:

  • 7-year loan, capped at 45 percent of 2019 gross receipts up to $10 million
  • 100 percent federal guarantee for the life of the loan
  • Employment cap of 5,000, with streamlined procedures for <500 employee firms
  • No cap on loan size based on multiple of payrolls
  • Self-certify a revenue loss (25 percent year-over-year, for at least three-month period)

Interest Rates/Payment Schedule:

  • No principal payments required for two years
  • Fixed interest rate for the first two years with a maximum rate of four percent
  • No interest payments due for the first 12 months
  • Payments of interest only for the next 12 months
  • The interest rate for years three to seven is the Applicable Federal Rate (AFR) plus a spread of 250 – 450 basis points, based on a revenue decline
  • Restrictions on dividends/share buybacks/executive compensation for the duration of loan with special rules for pass-thru entities.

Use of Funds:

  • Businesses can borrow to pay costs for the next six months, based on half of 2019 levels of:
  • Total payroll (up to $100,000 per employee)
  • Employee benefits (for both current and furloughed employees)
  • Rent
  • Utilities
  • Mortgage payments on existing mortgages as of February 15, 2020
  • Other scheduled debt service, as of February 15, 2020

Loan Forgiveness:

  • Level of forgiveness based on loss in revenues and may be applied for within two years of loan origination.
  • No requirement to increase staffing beyond what business conditions dictate
  • Smaller business forgiveness (<500 employees) more generous than larger businesses.
  • Small Business Forgiveness based on a formula including percentage decline in revenues for Payroll + Benefits + Operating Costs.
  • Larger businesses follow the same forgiveness, except for payroll (i.e., benefits and operating costs fully included but not payroll).
  • Nonprofits would have access to a loan, but would not be eligible for forgiveness. Instead, the loan terms would have a longer duration (e.g., up to 10 years) and/or a lower interest rate.

A more detailed summary of the Bennet-Young proposal and examples can be found HERE.