What the HEROES Act Would Mean for Small Businesses & PPP Funding

On May 15, 2020, the U.S. House of Representatives passed H.R. 6800, the ‘‘Health and Economic Recovery Omnibus Emergency Solutions Act’’ or HEROES Act.  The $3 trillion bill includes a host of COVID-19 relief provisions, including $1 trillion for state, local, and tribal governments; an additional round of direct stimulus payments for individuals; repeal of the 2017 tax bill limitation on the deduction of state and local taxes; a requirement that the Occupational Safety and Health Administration (OSHA) issue an emergency standard to protect healthcare workers and emergency responders from COVID-19; and a number of other provisions directly relating to employers regarding pay, benefits, and unemployment insurance.

The act, if approved by the Senate, would make immediate fixes to the Paycheck Protection Program (PPP) and provide much-needed clarity for small businesses across the country.

Specifically, the bill amends PPP funding by:

• Establishing an additional set aside of funds specifically for small Community Development Financial Institutions (CDFIs), Minority Development Institutions (MDIs), SBA microlenders, and SBA Certified Development Companies (CDCs)
• Creating a carve out of 25% of the funds to be used specifically for small businesses with 10 or fewer employees to guarantee they are fully able to access PPP assistance
• Creating a carve out of 25% of the funds solely for the use of all nonprofits, no matter their size or type but requiring that at least half this amount go to small nonprofits under the 500-employee threshold
• Mandating that any returned amounts due to the cancellation of a covered loan shall be redistributed through loans to small businesses with 10 or fewer employees

Additionally, the bill:

• Adds flexibility in the covered period for borrowers by extending the 8-week period to 24 weeks and extends the covered period from June 30 to December 31
• Creates a safe harbor for borrowers who cannot rehire in the prescribed timeframe and clarifies the hold harmless provision for lenders
• Harmonizes the use of proceeds with forgiveness
• Establishes a minimum maturity on PPP loans of 5 years to enable borrowers to amortize loans over a longer period of time, which lowers monthly payments
• Clarifies that PPP loans cannot be calculated on a compound basis, saving borrowers money over the long-term
• Bifurcates the SBA’s traditional lending authority in the 7(a) program from that of the PPP authority to certify the 7(a) lending program continues operation after PPP appropriations run out
• Requires mandatory regular reporting by the SBA on a number of specific demographic, industry, size, and geographic data points for PPP loans and EIDL loans and grants
• Mandates forgiveness data collection and reporting
• Clarifies the definition of a tribal business concern to prevent them from being held to inapplicable HUBZone requirements
• Alleviates burdens to borrowers deemed ineligible due to prior criminal history
• Makes a technical clarification to ensure hospitals in bankruptcy still qualify for PPP loans due to the essential nature of their operations
• Clarifies the interaction between the Employee Retention Tax Credit and the PPP loans to ensure borrowers can take advantage of both types of assistance
• Eliminates the 75/25 rule on use of loan proceeds
• Clarifies that the conflict of interest standards set forth in the law apply to PPP funds
• Establishes technical assistance grants for small community financial institutions and small depository institutions and credits with assets of less than $10 billion
• Mandates the SBA use previously allocated funds for purposes of translations services for all materials, applications, and websites related to COVID-19
• Ensures the principal and interest loan assistance is not treated as taxable income to small business borrowers.