Rubio’s New PPP Bill: The Two Minute Overview

Senator Marco Rubio’s new PPP bill, the “Continuing Small Business Recovery and Paycheck Program Program Act,” continues to inch along. And my hunch? Congress passes some larger bill with Rubio’s PPP proposals sometime soon.

Small business failures seem to be snowballing. (We recently discussed new research that suggests as much as 20 percent of small businesses may permanently close before this pandemic ends.)

More support for small business seems to be a bipartisan issue.

Small business owners and their advisors, therefore, want to know what’s going to be “in” any new PPP bill. Here are my guesses…

Restarted PPP Loan Program

The first thing to know? Probably some new PPP bill not only restarts the PPP program. It will probably add money to the pot.

The first phase ended with $100 billion in PPP loan funds. That money in a new PPP law would presumably become available.

And then something like Rubio’s bill adds another $90 billion to the fund. That’s all good news for struggling small businesses, obviously.

Fewer Eligible Borrowers

Probably fewer borrowers will be eligible in any new lending. Rubio’s new version of the PPP, for example, reduces the list of eligible borrowers. And the other flavors of PPP legislation that Congress talks about seem to take a similar tack.

Rubio’s new PPP law also targets small business employing 300 employees or less for one of its loan options. (The old employee count allowed was “up to 500 employees.”) Further, $25,000,000,000 of the PPP funding is actually supposed to go to firms with 10 or fewer employees.

Finally, the new law excludes categories of firms that Congress doesn’t want to read stories about in the Washington Post: firms owned or controlled by China, political  lobbyists, adult entertainment firms, and so on.

I think the advice here is twofold: First, don’t assume you can get PPP money if the optics of your firm borrowing would bother some politician. Second, obviously, if you do get a chance for more PPP money, read carefully the SBA’s loan application instructions to make sure that your small business qualifies.

Reduced $2,000,000 Loan Limit

A new PPP loan program will probably reduce the maximum loan size. The old ceiling equaled $10,000,000. Rubio’s new bill’s ceiling drops that figure to $2,000,000.

By the way, that reduction probably doesn’t impact many of the remaining eligible borrowers. The average loan in the first phase was just over $100,000.

But you want to know what the maximum loan size equals.

Additional Eligible Expenses

Rubio’s new bill and I think all of the other ideas floated allow PPP borrowers to receive forgiveness for a longer list of expenses.

New forgivable spending categories include operations expenses (which means business software and cloud computing costs), property damage costs from looting and vandalism, supplier costs, and then worker protection costs incurred to minimize Covid-19 risks to employees.

The extra categories of forgivable spending should make full forgiveness even easier to achieve.

Simplified Forgiveness

Maybe the biggest change to the PPP in Rubio’s bill? And a change talked about for other proposed bills?

The new bills typically let borrowers apply for forgiveness without submitting a stack of documentation. In other words, the forgiveness application works like a tax return.

Rubio’s bill, for example, says small businesses who borrowed less than $150,000 don’t need to provide substantiation of their spending on forgivable items. These borrowers only need to attest they’ve followed the program requirements and then keep records for three years (in case the SBA wants to do an audit.)

The new bill also simplifies forgiveness for small businesses who borrowed more than $150,000 but not more than $2,000,000. These folks just certify they appropriately spent the money and represent they’ve full documentation to back up their certification.

The SBA will surely provide precise detailed recipes should any of these new bills’ provisions become law.

Also, borrowers definitely want to wait and see if the new bill passes. The greatly reduced substantiation requirements will save hours of time. If not more.

Group Insurance Counts

The current version of the paycheck protection program counts group health insurance as a payroll cost.

Rubio’s new PPP bill lets people also count other “non-health” group insurance as payroll cost. I would not be surprised to see that in any final tweaking of the PPP.

Second Draw Loans

We talked in a blog post a few weeks ago about how especially hard hit small businesses may get a second draw loan.

I won’t repeat that discussion here. (Rubio’s bill provides a second bite of the apple for firms that show a 50 percent decline in revenues.) But if your firm has been just beat up terribly? Yeah, you may be able to get a second loan the same size as the first loan.

For example, if your first loan equals $100,000, your second draw loan equals $100,000.

PPP Loan Amount Increases

You probably know that many PPP borrowers received less money than they were entitled to.

Someone who should have been able to borrow $20,000 maybe only received $15,000, for example.

Rubio’s new PPP loan rules let a borrower go back to the original lender and get the loan amount bumped up to the right value. Hopefully that appears in any new PPP legislation.

Note: In another blog post we recently published, PPP Loan Amount Increases, we explained how the mechanics work in case of Rubio’s bill.

New Rules for Farmers and Ranchers

A critically important point for farmers and ranchers: While most unincorporated firms calculate the owner’s compensation replacement based on the net profit, farmers and ranchers under the new law may be able to calculate that amount based on the gross margin.

For example, a sole proprietor who generates $200,000 of revenue, spends $100,000 on cost of goods sold, and spends $50,000 on operating expenses, earns $50,000. Non-farmers and non-ranchers consider that $50,000 the owner’s compensation. Someone who operates this sort of sole proprietor qualifies for roughly a $10,000 PPP loan.

The accounting works differently for a farmer or rancher. For them, the owner compensation calculation just looks at the revenue and the cost of good sold.

For example, if a farmer or rancher generates $200,000 of revenue, spends $100,000 on cost of goods sold, and spends $50,000 on operating expenses, he or she also earns $50,000. But the owner’s compensation replacement for PPP loan formula purposes equals $100,000, which is the $200,000 in revenue minus the $100,000 in cost of goods sold.

A farmer or rancher in this situation qualifies for roughly a $20,000 PPP loan.

Friendlier to Seasonal Employers

One other thing to mention: The new PPP law may provide a more workable PPP loan formula for seasonal employers.

Rubio’s bill does this, for example. He proposes a new formula that essentially lets a seasonal business use a 12-week period when it’s actually active to determine what it’s payroll equals.

Rubio’s new PPP loan,  I should also mention, limits seasonal firms to $1,000,000 PPP loans or less. So that’s an idea we may end up seeing even in some other version.

Final Thoughts

Right now, we don’t know if a second wave of PPP lending will occur. And the precise details and timing of a new law? We just don’t know yet. Two guesses, however.

First, probably many elements of Senator Rubio’s proposal will appear in any new PPP bill. (He was the lead architect of the first PPP laws.)

Second, and this is scary, if a new PPP bill restarts lending? I assume the allocated funds will get used up fast. Accordingly, you want to stay on top of this. You want to be ready to move quickly.

Other Resources

Senator Rubio’s bill: Continuing Small Business Recovery and Paycheck Protection Program Act.

A quick summary of Rubio’s bill prepared by his office: Section by Section Summary.

Two resources to dig into small business closure and distress statistics: Opportunity Insights and the Census Bureau’s Small Business Pulse Survey.