On Thursday, U.S. Senators Todd Young (R-Ind.) and Michael Bennet (D-Colo.) introduced the Reviving the Economy Sustainably Towards a Recovery in Twenty-twenty (RESTART) Act to support the small- and mid-sized businesses most affected by the COVID-19 crisis.
Answering the calls of the hardest-hit restaurants, gyms, hotels, retailers and other businesses, the RESTART Act would give business owners who took out Paycheck Protection Program (PPP) loans the flexibility they need to utilize the PPP effectively. The RESTART Act would also create a loan program to provide funding to jump-start the hardest-hit businesses for the remainder of 2020 and provide loan forgiveness as a backstop against ongoing economic challenges.
Young
“The Paycheck Protection Program has been a tremendous asset, providing nearly $10 billion in loans to Indiana recipients, and saving more than 50 million American jobs. However, after speaking with some of the hardest hit businesses, it’s clear more is needed to help job creators navigate this pandemic. The RESTART Act addresses these issues by providing longer-term loans and more flexibility so that the businesses who have suffered the greatest economic hardship can resume operations. The RESTART Act will jumpstart the next phase of recovery to allow businesses to reopen, paychecks to continue, and people to get back to work,” said Young.
“This is the first and only bipartisan proposal that supports the hardest-hit businesses by fixing the Paycheck Protection Program and providing relief through the rest of the year,” said Bennet. “Based on input from business owners across Colorado, we’ve proposed a bill that provides the flexibility they need to weather the next six months and get their businesses back up and running.”
The RESTART Act bill text is available at this link. For the one-pager, click here.
Summary of the RESTART Act
Near-Term Fix to PPP for Hardest-Hit Businesses
Background: PPP has an eight-week “covered period” that begins immediately following the origination of a PPP loan. As funds were limited and there was much uncertainty, businesses rushed to apply and were unable to adjust the timing of their application to a point when they were actually prepared to relaunch their business. Payroll during this eight-week period is used to determine what amount of loan forgiveness a business receives.
Businesses are also required to rehire their full headcount by June 30, 2020, regardless of whether their business is back up to anything near full capacity. Businesses that have already laid off employees are having difficulty rehiring. Some businesses may be shuttered for most or even all of the eight-week period and may even be prohibited from operating at anything near full capacity by June 30, making the decision to rehire employees for a short timeframe even more difficult.
Proposal: Bennet and Young propose a simple fix to address a shortcoming of the PPP for many of the most-affected businesses: Extend the eight-week covered period to deploy PPP funds and earn loan forgiveness to 16 weeks after the loan is disbursed for the hardest-hit businesses that have seen revenues decline by at least 25 percent.
Longer-Term Strategy: The RESTART Program
Background: The PPP has worked well for some businesses, but is often less effective for the businesses that should be receiving the most assistance – the smallest businesses or those who have seen revenues decline the most. Its limited duration will also leave many of the most-affected businesses without support in the difficult months ahead.
Proposal: Bennet and Young propose a new RESTART Program, to provide funding to cover the next six months of payroll, benefits and fixed operating expenses for businesses that have taken a substantial revenue hit during the COVID-19 pandemic.
A share of that loan will be forgiven based on the revenue losses suffered by the business in 2020, and the remainder can be repaid over seven years, with no interest payments due in the first year and no principal due for the first two years.
This program is designed to provide small- and medium-sized businesses with loans to get their businesses going again, and ensure that they receive loan forgiveness to help fill in a loss in revenues.
Following are the basic terms of the program:
Loan Terms/Amount/Eligibility
- Seven-year loan, capped at 45 percent of 2019 gross receipts up to $12 million
- 100 percent federal guarantee for life of the loan
- Employment cap of 5,000, with streamlined procedures for less than 500 employee firms
- No cap on loan size based on multiple of payrolls
- Self-certify a revenue loss of 25 percent
- Interest Rates/Payment Schedule:
- No principal payments required for the first two years
- Fixed interest rate between 2 and 4 percent for the first two years (No interest payments due for first 12 months; payments of interest only for next 12 months)
- Interest rate for years three to seven is the Applicable Federal Rate (AFR) plus a spread of 250 to 450 basis points, based on revenue decline
- Restrictions on dividends/share buybacks/executive compensation for duration of loan with special rules for pass-through entities
- Non-profits have access to longer-duration loan (up to 10 years), with a lower interest rate in the first four years
Use of Funds
Businesses can borrow to pay for an array of business costs including the following:
- Total payroll (up to $100,000 per employee)
- Employee benefits (for both current and furloughed employees)
- Rent
- Utilities
- Mortgage interest payments on existing mortgages
- Other scheduled debt service
- Personal Protective Equipment
Loan Forgiveness
- Level of forgiveness based on decline in revenues and may be received within two years of the loan origination
- No requirement to increase staffing beyond what business conditions dictate
- Smaller business forgiveness (fewer than 500 employees) more generous than for larger businesses. Small Business Forgiveness based on a formula including percentage decline in revenues for Payroll + Benefits + Operating Costs
- Larger businesses follow same forgiveness, except for payroll (i.e. benefits and operating costs fully included but not payroll)
- Non-profits with up to 500 employees would have access to either partial loan forgiveness or enhanced loan terms.