PPP, key tool to keep workers employed, runs out of funds

The Payroll Protection Plan (PPP), which was designed to keep people employed and paid, has run out of money.

The U.S. Small Business Administration (SBA) posted the news on its website this morning, April 16, under a banner that said “Notice: Lapse in Appropriations.”

“The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding,” the SBA said under the stark heading.

The news was not unexpected. It became clear in the last few days that the volume of financing under PPP was moving at a pace rapid enough that it would hit its roughly $350 billion funding peak soon. This morning, it happened.

Republicans and Democrats in Congress have not been able to agree on the terms of the next phase of funding. 

The pending exhaustion of funds led SBA Administrator Jovita Carranza to post on Twitter late on April 15 that she and Treasury Secretary Steven Mnuchin were urging Congress “to appropriate additional funds for the [PPP], a critical and overwhelmingly bipartisan program at which point we will once again be able to protect millions more paychecks.”

An SBA spokeswoman told FreightWaves this morning that as of 8:45 a.m. on April 16, the agency had accepted 1,637,000 applications and approved more than $339 billion in loans, working through more than 4,900 lending institutions. 

The PPP program has numerous moving parts. But at its heart, it was designed to provide loans that could mostly be forgiven to companies with 500 employees or fewer, with the money to be used mostly – 75% of it – to maintain payroll for roughly 10 weeks.  

Whether trucking was getting enough or too little will always be hard to know. In a status report issued on April 13, the SBA said it had approved 28,181 loans in the Transportation & Warehousing sector, totaling $7.824 billion. 

That was 3.16% of all loans disbursed. The loans are first come, first serve so whether they align with an industry’s share of the economy was never guaranteed. Construction led the list with 13.73% of all loans disbursed. A broader category called Professional, Scientific and Technical Services followed with 12.26%.

Earlier this week the SBA posted a clarification on one key question that could be significant to the trucking industry and its ability to get loans. The rules can be complex at times; on a recent webinar sponsored by the Truckload Carriers Association, an inordinate amount of time was spent talking about the eligibility of companies under the 500 employee rule if they were affiliated with other companies. 

THe clarification by SBA is for companies that are set up as partnerships, with taxes filed through a Schedule C document. Under such a setup – which could include a small trucking company – how would the partner’s income to be replaced be determined?

The interpretation of the rule by Jack Rybicki of the accounting and advisory firm of CLA is that the SBA rule answered a “key question regarding the proper treatment by partnership for active owners who do not receive W-2 wages.”

According to Rybicki, the SBA’s clarification is that the self-employment income of the “active owners” should be included in the average monthly payroll costs that the company seeking money from SBA would put as its borrowing base. “A partner in a partnership may not individually submit a separate PPP loan application for lost earnings from the partnership,” Rybicki wrote.

(Rybicki was this week’s guest on the Drilling Deep podcast and you can hear his comments on the PPP program here.)

But there are specific limitations on how much an owner can get back. In the SBA clarification statement, the agency said the loan forgiveness for the partnership would be a “proportionate eight-week share of 2019 net profit.” That is less than the 2.5 months of payroll that had been set as the maximum base for borrowing under PPP.

The reasoning for the SBA decision, the agency said, is that “many self-employed individuals have few of the overhead expenses that qualify for forgiveness under the Act.” Those costs include such things as rent and utilities.

“Allowing such a self-employed individual to treat the full amount of a PPP loan as net income would result in a windfall,” the SBA notice said.