USA TODAY International Edition
PPP forgiveness doesn’t really work
Complex provision fails to address real needs
Congress and Treasury Secretary Steven Mnuchin: If you truly care about the survival of America’s small businesses, fix the forgiveness provisions of the Paycheck Protection Program ( PPP) and fix them fast. We need additional help for millions of small businesses that face annihilation.
PPP forgiveness provisions are, in a word, a mess. The PPP creates incredible confusion, pitting small- business owners against their employees, conflicting with the reality of many smallbusiness PPP recipients and not addressing significant non- payroll expenses of small businesses.
When Congress enacted the PPP, rather than providing simple grants to the smallest businesses, it created a complex system. To qualify for loans to be forgiven, small businesses must rehire their workers for eight weeks. Even if they aren’t open; even if there’s no work.
What’s wrong with PPP?
That seems silly on the face of it, doesn’t it? Sure, it works for small businesses that continued operating through the COVID- 19 crisis or that quickly reopened at full or near- full capacity. For the overwhelming majority of small businesses still closed or facing significantly reduced demand, these provisions make little sense.
Worse, the forgiveness provisions are far from crystal clear. My accountant and a business lawyer gave opposite interpretations of a forgiveness provision. I’ve repeatedly been told that whether a business has met the forgiveness provisions would be “up to individual banks.”
In what may be the absolute worst provision, the PPP pits small- business owners against their employees. A dental hygienist was laid off as patients stayed away, worried whether a teeth cleaning was safe. Nevertheless, her boss opened the office to meet PPP forgiveness provisions, giving hygienists an ultimatum: return to work or be fired. Because it’s likely there will be vastly reduced customer demand, he offers only part- time work, and the pay won’t cover her day care costs.
The Visual Capitalist website lists dental hygienist as the No. 1 most atrisk job for COVID- 19. She’ll put her life at risk and lose money. Or she’ll lose her job – a job she loves. This is not necessary.
What’s the solution?
Fix the PPP forgiveness provisions ASAP, and enact programs to help all small businesses survive.
❚ Allow the smallest businesses to convert PPP loans into a grant. If a small business received $ 100,000 or less, let it file a simple form and have the loan automatically forgiven.
❚ Extend the eight weeks forgiveness provision to Dec. 31, or eight months after the business reopens if still on lockdown. This enables businesses to rehire employees when there’s actually likely to be customer demand, reducing conflict with employees.
❚ Widen the use and percentage of forgivable funds to better match the reality of small businesses, enabling them to use the funds for rent, utilities, equipment maintenance/ leases, insurance, operating expenses, etc.
❚ Allow small businesses to deduct expenses they made under PPP as normal business expenses. Mnuchin says expenses covered by PPP forgiveness will not be tax- deductible. By disallowing normal business deductions, he is, in effect, taxing forgiven PPP dollars.
In addition to fixes in the PPP forgiveness provisions, more money, more programs and more time are needed. Facing such an uncertain future, small- business owners do not want to take on debt. Simple, straightforward grants are necessary.
In the first round of PPP loans, only 5.7% of America’s small businesses received funding. Experts warn that it may take more than a year to get the virus under control, Small- business grant and aid programs must last throughout the duration of the COVID- 19 crisis and recovery.
America must act fast to save tens of millions of small- business jobs. According to Main Street Alliance, “countries that elected direct subsidies to business have been spared the massive spike in unemployment we have experienced here in the U. S.”
A coalition of more than 60 smallbusiness organizations warned, “With little or no revenue coming in, entire sectors of the small- business economy face extinction.”
That would be a disaster. Half of all jobs in America are in small businesses. If we don’t save them, America will not recover from this crisis.