New Rules, Later Deadline for Small-Business Loan Program

Summary

---

WSJ Your Money Briefing — New Rules, Later Deadline for Small-Business Loan Program

Date: July 8, 2020
Host: Charlie Turner (B)
Guest: Peter Rudegair (C), WSJ Reporter

---

Episode Overview

This episode focuses on recent updates and changes to the federal Paycheck Protection Program (PPP), a central support measure for small businesses impacted by the COVID-19 pandemic. With Congress extending the application deadline and revising many program rules, host Charlie Turner and WSJ reporter Peter Rudegair break down what has changed, why, and what it means for small-business owners.

---

Key Discussion Points and Insights

1. PPP Application Deadline Extended

• New Deadline: Businesses can apply for PPP loans until August 8 (previous deadline: June 30).

  • "So small businesses now can apply until August 8th for a PPP loan; before the deadline was June 30th." (Peter, 01:31)

• Reasons for Extension:

  • ~$130 billion remained unused by initial deadline.

  • The ongoing economic impact is more severe and longer-lasting than originally thought.

  • Some states are pausing or reversing reopenings, increasing business needs.

  • "There are two main reasons. One, there was around $130 billion left... And the second was the economic picture looks very different today than it did in March." (Peter, 01:41)

2. Changes to Loan Forgiveness Requirements

• Payroll Expense Requirement Lowered:

  • Previously, 75% of loan funds had to be used for payroll to qualify for forgiveness.

  • Now, only 60% must be used for payroll.

  • "It used to be you had to spend 75% on payroll. Now that requirement is lowered to 60%." (Peter, 02:44)

  • This change was made to help businesses in high-rent areas cover more non-payroll costs.

• Longer Period to Use Funds:

  • The timeline to spend PPP money increased from 8 weeks to 24 weeks.

  • "The second is extending the amount of time you have to... use the PPP funds rather to 24 weeks from eight weeks." (Peter, 02:44)

3. Expanded Eligibility: Owners with Criminal Records

• Old Rule: Owners with non-financial felonies in past 5 years were ineligible.
• New Rule: That window narrowed to 1 year, making more former offenders eligible.
  • "They've relaxed that period to just one year... again non financial in nature." (Peter, 04:03)
• Financial felonies (e.g., fraud or embezzlement): Still render applicants ineligible.

4. Program Accessibility and Lender Availability

• Start of PPP: Many lenders were unprepared, making applications difficult.
• Current Landscape:

  • Now over 5,000 lenders participate.

  • Small businesses no longer struggle to find participating banks.

  • "We have more than 5,000 lenders that participated in PPP... Now, other banks... have had months to get their systems in order." (Peter, 04:45)

5. Program Impact and Unmet Need

• Early Days:
  • Funds exhausted rapidly (~13 days), with intense competition among applicants.
  • Some controversy as large, well-resourced companies received loans first.
• Now:

  • More funds available.

  • Jobs numbers suggest the PPP helped small businesses rehire staff.

  • But with 30 million small businesses in the U.S., only 5 million PPP loans have been granted—many still in need.

  • "Now you have a lot of businesses that were able to claim it that didn't get access that first round..." (Peter, 05:16)

  • "There are 30 million small businesses... and only 5 million PPP loans so far." (Peter, 05:16)

6. Transparency: Release of Large PPP Loan Data

• Recent Development: Administration released the names of companies receiving $150,000+ in PPP funds.
• Surprises:

  • Recipients include large law firms (e.g., Boies Schiller) and ideologically unexpected entities (Ayn Rand Institute).

  • Some large franchises and previously criticized companies retained funds.

  • Less controversy now, since funds remain and smaller firms aren't being crowded out.

  • "There have been some firms that you wouldn't especially think would need a PPP loan... Some very well heeled law firms... the Ayn Rand Institute... more of the same kind of hotel chains and restaurant chains that we had seen in April..." (Peter, 05:59)

  • "Now again, there's $130 billion left in the program. So it's not the same dynamic..." (Peter, 06:48)

7. Loans Returned Following Outcry

• About 170,000 loans ($38 billion) returned to SBA

  • Prompted by government clarifying that public companies with other capital options shouldn't keep the money.

  • Shift from "honor system" to stricter standards for demonstrating need.

  • "There was about 170,000 loans worth $38 billion that were returned... The government came out and said... if you are a public company of means ...you should probably return the money." (Peter, 07:05)

---

Notable Quotes & Memorable Moments

• On the PPP's Changing Role:
  • "Businesses that maybe didn't want a PPP loan a month ago or think they didn't need it a month ago, could need it now." (Peter, 00:44)
• On Early Chaos:
  • "There was this frenzy when it first rolled out. The money got spent. You know, the first round's funds got used up in about 13 days." (Peter, 05:16)
• On Fairness and Transparency:
  • "Recall when the money ran out in 13 days, before every dollar that Shake Shack or Ruth Chris got was a dollar that your mom and pop restaurant didn't get. So there was a sense of unfairness when some of those recipients were revealed a couple months ago." (Peter, 06:27)
• On Broad Underserved Need:
  • "There are 30 million small businesses in this country and only 5 million PPP loans so far. So there's a lot of businesses that haven't gotten the aid that could use it yet." (Peter, 05:16)
• On Rule Changes Prompted by Public Pressure:
  • "That had to do with a rule change the administration made again after this outcry that big public companies were getting these loans..." (Peter, 07:05)

---

Timestamps for Important Segments

• New deadline and why extended: 01:31–02:34
• Loan forgiveness rules revised: 02:34–03:57
• Criminal record eligibility changes: 03:57–04:37
• Improved access to PPP lenders: 04:37–05:13
• Program breadth and gaps: 05:13–05:49
• Big recipients & public reaction: 05:49–07:01
• Loans returned after scrutiny: 07:01–07:39

---

Conclusion

The PPP has evolved significantly, with Congress addressing numerous concerns: expanding access, easing forgiveness rules, and prompting greater transparency. While the pace and nature of support have improved, many small businesses remain underserved. As the landscape continues to change, both program applicants and public debate are likely to evolve as well.

Reporter Peter Rudegair’s closing thought:
"It's had a good effect on the employment rate... But there are 30 million small businesses and only 5 million PPP loans..." (05:16)

---

Transcript

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[B]

Here's your money briefing for Wednesday, July 8th. I'm Charlie Turner for the Wall Street Journal. Small businesses that have been hurt by the pandemic are getting another chance to apply for loans from the federal government.

[C]

Businesses that maybe didn't want a PPP loan a month ago or think they didn't need it a month ago, could need it now. So Congress wanted to give them more weeks to take advantage of that program if they could.

[B]

That's our reporter Peter Rudiger. After the break, he'll give us an update on the latest changes to the federal paycheck protection program. Small business owners who haven't yet applied for a loan under the paycheck protection program now have another shot. Congress extended the program for a third phase of forgivable loans, but the PPP has been tweaked a lot along the way. Joining us now for a status update is our reporter Peter Rudiger. First of all, Peter, what's the new deadline to apply for PPP loans?

[C]

So small businesses now can apply until August 8th for a PPP loan before the deadline was June 30th.

[B]

And remind us why Congress extended the deadline.

[C]

So there are two main reasons. One, there was around $130 billion left in the PPP coffers at the end of June when it was had to expire. And rather than just let that money sit idle or go back into the treasury for other purposes, Congress wanted to make that available to small businesses that need it. And the second was the economic picture looks very different today than it did in March. Remember, all the way back then when this past Congress, there was a thought this would be a bridge for small businesses until the economy reopens. Eight weeks should be plenty of time. The economy should be back on its footing and businesses can, you know, start bringing staff back and pay them for work done. Now you have states like Texas and Florida, you know, pausing, reopening, reversing course. Businesses that maybe didn't want a PPP loan a month ago or think they didn't need it a month ago could need it now. So Congress wanted to give them more weeks to take advantage of that program if they could.

[B]

We've talked on the show before about various issues with the PPP program. Let's get an update on a few of them. The requirements for having a loan forgiven have changed. Why is that?

[C]

That's right. There are new requirements for getting a loan forgiven. It used to be you had to spend 75% on payroll. Now that requirement is lowered to 60%. And that was changed because there are a lot of businesses in high cost places like New York or Los Angeles or cities where the rent payments were extremely high and it just if they could only spend 25% of the loan on non payroll expenses, that didn't do them any good. So Congress heard those cries and relaxed the requirement for how much you had to spend on payroll. The second is extending the amount of time you have to pay back or to use the PPP funds rather to 24 weeks from eight weeks. So there were a lot of businesses that got the loan beginning of April when the first batch was available again, thought they might be ready to reopen in eight weeks, spent the money, you know, with that, you know, in the back of their heads and lo and behold, eight weeks comes and goes and the businesses couldn't reopen. And you have people thinking, well, maybe I would have spent the money differently if I knew I could spend it over 24 weeks. They didn't have to front load it all and be left in the situation where I laid off my people once I brought them back to work, you know, it's eight weeks are over and I don't have any money to pay them. I have to lay it off again, lay them off again. So Congress wanted to avoid that scenario from happening again.

[B]

We also talked about how business owners with criminal records were barred from getting a loan. Has that changed?

[C]

That has changed. So it used to be if you were, if you had at least a 20% stake in a business and you had been convicted of a non financial felony in the past five years, you were ineligible for a loan. They've relaxed that period of just one year. So you know, if you had a felony in your past, again non financial in nature, and it maybe happened three years ago, you weren't eligible under the old rules. You are eligible now. Unfortunately, it's still the same if you were convicted of a financial penalty. So if you were convicted of embezzlement or fraud, you know, three years ago, this, this new rule doesn't help you very much.

[B]

Another issue early on was that some applicants had a hard time finding lenders who were participating in the program. Where do things stand now on that

[C]

front that's gotten a lot better. We have more than 5,000 lenders that participated in PPP. What was difficult in that first week was because the program launched just a week after it passed Congress. So many banks and other lenders weren't ready to accept applications and the money ran out in that first round within two weeks. Now, other banks, you know, other lenders have had months to get their systems in order and accept applications. So small businesses don't have that much of an issue finding them.

[B]

Sounds like the program now is pretty different from how it was when it first rolled out.

[C]

Oh, for sure. There was this frenzy when it first rolled out. The money got spent. You know, the first round's funds got used up in about 13 days. Now, you know, you have a lot of businesses that were able to claim it that didn't get access that first round because Congress retopped up the money. It's had a good effect on the employment rate. You know, we've seen the jobs numbers the past couple of months indicating that small businesses have been able to bring back their workers. That being said, you know, there are 30 million small businesses in this country and only 5 million PPP loans so far. So there's a lot of businesses that haven't gotten the aid that could use it yet.

[B]

Peter, this week the Trump administration released the names of companies that received at least $150,000. And in PPP funding, have there been any surprises?

[C]

Yeah, there have been some firms that you wouldn't especially think would need a PPP loan to weather the storm that got one. You know, some very well heeled law firms like Boyce Schiller, kind of ironically, some groups that are campaign against, you know, active government, like the Ayn Rand Institute got PPP loans and you know, more of the same kind of hotel chains and restaurant chains that we had seen in April when they were publicized for getting PPP loans via SEC filings. A lot of those decided to keep the money just because they needed them. Now I'm not sure there'll be the same outcry now as there was back then on these big public companies getting PPP loans. Recall when the money ran out in 13 days, before every dollar that Shake Shack or Ruth Chris got was a dollar that your mom and pop restaurant didn't get. So there was a sense of unfairness when some of those recipients were revealed a couple months ago. Now again, there's $130 billion left in the program. So it's not the same dynamic where just because this expensive law firm got a loan doesn't mean the diner down the street couldn't get a loan either.

[B]

Was there a significant number of companies that gave the money back?

[C]

There was. There was about 170,000 loans worth $38 billion that were returned to the SBA. And that had to do with a rule change the administration made again after this outcry that big public companies were getting these loans before it was kind of on the honor system. You just had to say that, you know, there's economic uncertainty created by the coronavirus, so I need this loan. Then the government came out and said, if you are a public company of means with access other access to other sources of capital, you probably can't make that assertion in good faith, so you should probably return the money.

[B]

Wall Street Journal reporter Peter Rudiger. Thanks a lot, Peter.

[C]

Thanks, Charlie.

[B]

And that's your money briefing. I'm Charlie Turner for the Wall Street Journal.

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.