For Texas Small Businesses, Cornyn Recommends Correction to PPP Loan Forgiveness Requirements

I recently sent a letter to Secretary of the Treasury Steven Mnuchin and Administrator of the Small Business Administration (SBA) Jovita Carranza urging changes to the loan forgiveness criteria of the Paycheck Protection Program (PPP) loans to help small businesses and particularly restaurants, which tend to have lower payroll expenses, use the program to stay afloat during the pandemic.  Specifically, we Senators recommended the loan forgiveness requirement that 75% of the loan be spent on payroll (with 25% allowed to be spent on other expenses) be reduced to 50% or lower.

“The 25 percent threshold is problematic for several business sectors, especially those whose mortgage, rent, or utility payments constitute a large portion of fixed monthly expenses,” we wrote.  “If they are unable to cover these expenses, they will have to decide between keeping their doors open, at personal financial risk, or closing shop and laying off employees.  These are businesses that will not recover.  Such an outcome would result in mass layoffs that would shift more Americans onto unemployment, presenting significant long-term costs to families, businesses, and states.”

“We ask that you exercise the power of your respective offices to ensure all business sectors are able to spend at least 50 percent of the loan proceeds on the statutorily allowed non-payroll expenses.  Access to loan forgiveness was a critical component of the CARES Act, and making it as effective as possible will help further the CARES Act’s goal of supporting small businesses while keeping American workers employed.”

Joining me on the letter were U.S. Senators Robert Menendez (D-NJ), John Barrasso (R-WY), Dick Durbin (D-IL), Marsha Blackburn (R-TN), Chris Van Hollen (D-MD), John Boozman (R-AR), Chris Coons (D-DE), Lindsay Graham (R-SC), Richard Blumenthal (D-CT), James Lankford (R-OK), Michael Bennett (D-CO), Cory Gardner (R-CO), Kirsten Gillibrand  (D-NY), Kelly Loeffler (R-GA), Kyrsten Sinema (D-AZ), Roger Wicker (R-MS), Ron Wyden (D-OR), Rob Portman (D-OH), Patrick Leahy (D-VT), and Cory Booker (D-NJ).

I launched a series of statewide outreach calls with small businesses, healthcare workers, nonprofits, local municipalities, agricultural groups, trade associations, and other Texans on March 6. My website has additional resources for Texans during the coronavirus outbreak here.

I also introduced the Small Business Expense Protection Act today, which would clarify that small businesses can deduct expenses paid with a forgiven PPP loan from their taxes.

You can read the full letter here, and text is below.

May 5, 2020

The Honorable Steven Mnuchin                               The Honorable Jovita Carranza
Secretary                                                                            Administrator
U.S Treasury Department                                            Small Business Administration
1500 Pennsylvania Ave NW                                      409 3rd St, SW           
Washington DC  20220                                                Washington, DC 20416

Dear Secretary Mnuchin and Administrator Carranza:

Thank you for your tireless work in developing and implementing the Coronavirus Aid, Relief and Economic Security (CARES) Act.  This critical legislation has bolstered our country’s defense against COVID 19 and provided a critical lifeline for businesses struggling to keep their doors open.  We commend your efforts to make the Paycheck Protection Program (PPP) and Economic Interruption Disaster Loans (EIDL) as effective as possible. 

As you know, the CARES Act provided a path to loan forgiveness for funds spent on payroll and other statutorily defined covered business expenses, conditioned upon business retaining or rehiring employees.  These provisions incentivize business owners to keep their employees, providing steady income for millions of Americans and limiting start-up costs after the pandemic.  However, the Small Business Administration (SBA) and Department of Treasury have created other conditions for loan forgiveness.  Specifically, regulations require that at least 75 percent of a PPP loan be spent on payroll, leaving no more than 25 percent to go toward the additional covered business expenses identified in the statute.

The 25 percent threshold is problematic for several business sectors, especially those whose mortgage, rent, or utility payments constitute a large portion of fixed monthly expenses.  If they are unable to cover these expenses, they will have to decide between keeping their doors open, at personal financial risk, or closing shop and laying off employees.  These are businesses that will not recover.  Such an outcome would result in mass layoffs that would shift more Americans onto unemployment, presenting significant long-term costs to families, businesses, and states.

We ask that you exercise the power of your respective offices to ensure all business sectors are able to spend at least 50 percent of the loan proceeds on the statutorily allowed non-payroll expenses.  Access to loan forgiveness was a critical component of the CARES Act, and making it as effective as possible will help further the CARES Act’s goal of supporting small businesses while keeping American workers employed.

Our offices stand ready to work with you in ensuring the full recovery of the U.S. economy and that the implementation of the CARES Act is equitable to all covered business sectors.  Please do not hesitate to contact us if we can assist in any way.