(Bloomberg) -- The federal government should weigh forgiving all “small” loans provided under the Paycheck Protection Program during the coronavirus pandemic, U.S. Treasury Secretary Steven Mnuchin said.
“We should consider forgiving all small loans, but would need fraud protection,” Mnuchin told the House Small Business Committee on Friday.
The government has approved more than 4.9 million PPP loans totaling $518.1 billion, as of Thursday night. Mnuchin didn’t specify what he considers a “small” loan that could be forgiven, and said that “some level of reporting in a simple way is important.”
Suggesting easier rules for PPP only touched on the larger issues confronting the Trump administration and Congress as the surge in Covid-19 infections threatens to cripple the nascent U.S. economic rebound. The uptick in job growth since the worst of the lockdown hinges on trillions of dollars in various stimulus programs that are due to expire in the coming weeks. U.S. consumer sentiment turned much more pessimistic this month, wiping out the boost from businesses reopening.
President Donald Trump laid down one marker on Thursday for a new relief package, saying it must contain a cut in the U.S. payroll tax. But Democrats promptly shot that down and some Republicans are also wary, raising the prospect of a contentious negotiation. Senate Minority Leader Chuck Schumer said Friday that Republicans needed to start negotiating on another round of aid.
Mnuchin’s interest in forgiving PPP loans comes after a coalition of almost 150 groups sent a letter to legislative leaders calling for all PPP loans of less than $150,000 -- about 87% of all loans approved through June 30 -- to automatically become grants, instead of requiring those owners to complete the complicated loan-forgiveness process.
The PPP allows loans of as much as $10 million, which can become grants if borrowers spend most of the proceeds on payroll costs. Recipients apply to have loans forgiven, and must show they maintained headcount and salaries, or the amount forgiven is reduced.
Small-business advocates have complained the application is too long and the process too complicated, especially for the smallest businesses -- even after the Small Business Administration and Treasury Department, which jointly run PPP, released an “EZ” form for some borrowers.
There was more than $132 billion in remaining PPP funds as of July 10. Mnuchin said he supports a second round of PPP to allow firms to apply for a second loan, adding that the relief should be targeted, based on revenue loss and size of business.
“We have complete agreement there should be a second check available to the businesses that are hardest hit, and there should be requirements around that,” Mnuchin told the committee. He singled out restaurants, hotels and other travel and hospitality businesses as needing more help.
Also Friday, former Federal Reserve Chair Janet Yellen told a separate House panel that she’s “tremendously concerned” about Congress allowing extended federal unemployment insurance benefits to lapse, leading to a “catastrophe” for the economy.
“We need the spending that those unemployed workers can do. Without it, we could see more weakness as their spending contracts,” Yellen said at a House Select Subcommittee on the Coronavirus Crisis hearing. There would be weakness throughout the economy without it, she said, underlining that low-income workers have a high propensity to spend the money.
Meanwhile, conservative groups stepped up a campaign to persuade Congress and the White House that the next stimulus measure shouldn’t include any extension of the unemployment benefits.
Alfredo Ortiz, head of the conservative Job Creators Network, said his group is instead seeking back-to-work bonuses for employers and employees and a targeted payroll tax holiday, aimed at smaller businesses. Another conservative group, Committee to Unleash Prosperity, founded by Steve Forbes, Stephen Moore and Art Laffer, said in an email to supporters that no stimulus deal is “FAR preferable to this economic cyanide pill,” referring to an extension of unemployment benefits. They’re preparing a similar letter to send to the White House.
At the House Small Business Committee hearing, Mnuchin and SBA Administrator Jovita Carranza were asked about errors in the PPP loan data released July 6 and the backlash for doling out millions of dollars to big-name law firms, Wall Street managers and companies with ties to Trump and other politicians. Mnuchin said while restrictions were placed on other stimulus programs, Congress did not limit PPP loans.
Carranza reiterated that PPP loans will be reviewed before they are approved for forgiveness -- the administration has already said all loans of more than $2 million will be reviewed -- and she encouraged businesses or lenders who think their reported information is inaccurate to contact the agency to have it corrected.
Small Business Committee Chairwoman Nydia Velazquez and other lawmakers pressed Carranza to lift a $150,000 cap on loans for a separate Economic Injury Disaster Loan program, but she said the average loans are small and there are still millions of applications to process with the remaining funding.
(Updates with conservative groups starting in 13th paragraph.)
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