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The Treasury Department announced today that it will make targeted changes to its Paycheck Protection Program pandemic relief loans in an attempt to direct more funding toward the smallest of small businesses, the Washington Post reported. Among other changes to the loan program, businesses with more than 20 employees will be shut out of the PPP program for a two-week period starting on Wednesday, officials said. The Biden administration has not said whether it will seek to extend the program after the current tranche of funding expires March 31. But Monday’s announcement signaled that the Treasury Department will continue to support the program at least in the short term, while instituting relatively minor changes designed to tame its excesses. In a call with reporters Sunday evening, senior officials sought to turn the page on past criticisms that PPP has sent large sums of money to larger businesses at the expense of smaller ones. Aside from shutting out the larger firms, the Treasury Department announced Monday that it will permanently change the loan calculation formula it applies to independent contractors such as Uber drivers and real estate agents, some of whom received minuscule sums of money under the earlier rules. The new rules are designed to increase their payouts. The Treasury Department also plans to change its application procedures to make it easier for noncitizen business owners to receive loans. And it will eliminate rules that shut out borrowers with past felony convictions and people who have defaulted on student loans, changes that were spelled out in the most recent bipartisan relief bill. Read more. 

The problems plaguing those seeking loans from the government’s revived small-business relief program have ranged from simple to shocking, the New York Times reported. Some applications were stalled for weeks by typos. Overzealous fraud filters trapped others. A change of taxpayer identification rules snarled many freelancers and sole proprietors. And then there were the thousands of people turned down because they erroneously registered as having a recent criminal conviction. Six weeks into the second run of the Paycheck Protection Program, $134 billion in emergency aid has been distributed by banks, which make the government-backed loans, to 1.8 million small businesses. But a thicket of errors and technology glitches has slowed the relief effort and vexed borrowers and lenders alike. Some are run-of-the-mill challenges magnified by the immense demand for loans, which has overwhelmed customer service representatives. But many stem from new data checks added by the Small Business Administration to combat fraud and eliminate unqualified applicants. On Monday, the Biden administration unveiled a number of changes to address some problems and ensure that the most vulnerable small businesses get priority. For a two-week period beginning on Wednesday, only businesses with fewer than 20 employees will be able to apply for loans. Under the general rules, businesses with up to 500 employees are eligible for aid. Also, the Small Business Administration will revise the way loans are calculated so that sole proprietors and other self-employed individuals, who in the past were excluded from the program if they were not turning a profit, are able to tap more funds. Read more. 

The coronavirus is making it nearly impossible for bankrupt small businesses to predict their future income, adding a surprise wrinkle to a recently enacted law that aims to streamline small debtors’ reorganization, Bloomberg Law reported. Subchapter V of chapter 11 created a new process under which a small business currently with less than $7.5 million in debt can restructure in bankruptcy. The $7.5 million threshold was established by the CARES Act, but sunsets back to the original amount of $2,725,625 unless Congress extends the enhanced limit by March 27. Under the subchapter V, debtors can pay off creditors over a three- to five-year period under a payment plan based on “projected disposable income.” That figure should have been a routine determination based on past business performance. Then the pandemic hit. Covid-19-fueled uncertainty has driven debtors to lowball their projections, while court-appointed trustees have fought to boost creditor recovery. That conflict has become the focal point of bankruptcy cases for small businesses seeking to reorganize under Subchapter V. “Projecting future income is always a trick and the pandemic has made that trick trickier,” said Donald L. Swanson, a bankruptcy attorney at Koley Jessen in Omaha, Neb. Before the law went into effect, bankrupt smaller companies usually overstated their expected income to show they could keep up with payments on secured assets in order to get their plans confirmed, Swanson said. “Subchapter V has flipped that on its ear a little bit,” he said. Debtors with more unsecured debt—such as service-based businesses—now have an incentive to understate projected income to keep plan payments low, Swanson said. Without a committee, the subchapter V trustee may be the only one advocating in court for higher creditor payments in the Chapter 11 plan. Creditors have the right to intervene in a subchapter V case, but many are small businesses themselves and often don’t have the time or resources to do so. Lower payments aren’t all bad news for creditors, however. For many, the real recovery “is not what you’re getting from the distribution in the plan,” said Barbra R. Parlin, an attorney at Holland & Knight LLP in New York, whose practice includes bankruptcy, restructuring, and creditors’ rights. “It’s the fact that they have an ongoing customer. That’s what’s important to them.”

For more news, analysis and statistics on subhcapter V and the Small Business Reorganization Act, be sure to visit ABI's SBRA Resources page.

Treasury Secretary Janet Yellen urged on CNBC yesterday that it's crucial to go big on the next round of coronavirus relief legislation, The Hill reported. “We think it’s very important to have a big package [that] addresses the pain this has caused — 15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing,” Yellen said. “I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run,” she added, repeating a phrase she has frequently used to argue for a larger stimulus. The administration has been working with lawmakers, business groups and others on President Biden's $1.9 trillion COVID-19 aid and stimulus package. Republicans have balked at the price tag, but Democrats are increasingly indicating their willingness to pass legislation with or without GOP support.

Republicans are zeroing in on potentially hundreds of billions in unspent funds from previous rescue packages in their criticisms of President Biden’s $1.9 trillion relief plan, The Hill reported. GOP lawmakers, who are in favor of a coronavirus measure that carries a smaller price tag, say the combination of unobligated funds and an improving economic outlook mean Democrats need to scale back their ambitions for the latest relief bill. “It is estimated that approximately $1 trillion in existing COVID-19 funding has yet to be spent,” said Rep. Jason Smith (Mo.), the top Republican on the House Budget Committee. “Before President Biden and congressional Democrats try to pass trillions more in spending, the American people need, at the very least, a thorough and accurate accounting of the trillions of dollars already approved.” The funding argument has popped up at both committee hearings and on the Senate floor. "Now we're to a point where the Biden administration is proposing $1.9 trillion of additional spending,” Sen. Lindsey Graham (R-S.C.), ranking member on the Senate Budget Committee, said earlier this month. “We haven't spent the money we've allocated, nowhere near the money we've allocated." Biden, stung by the experience of a scaled-down stimulus package in 2009 that contributed to a slow recovery from the Great Recession, says it’s riskier to do a smaller relief bill than a big one, a position backed by Federal Reserve Chair Jerome Powell.