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Biden aims to atone for PPP flaws with new rules emphasizing small businesses

February 23, 2021, 12:43 AM UTC

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Despite being pitched as the largest small business relief program in U.S. history, the Paycheck Protection Program (PPP) has been beset by numerous flaws and controversies since launching nearly a year ago amid the pandemic. From a slow rollout marked by technical problems to widespread instances of fraud, these shortcomings have tainted PPP even as it’s provided American businesses with more than 7 million loans worth more than $660 billion.

In an effort to fix some of these issues and restore faith in the program, the Biden administration on Monday announced changes to PPP—revealing a renewed emphasis on aiding small and minority-owned businesses that have often been overlooked, and rooting out “waste, fraud, and abuse”.

For starters, the White House announced that it will institute a 14-day period—beginning this Wednesday, Feb. 24—during which only businesses with fewer than 20 employees can apply for PPP funds. That’s meant to address one of the program’s most visible flaws—in which large, often publicly traded companies were able to receive millions of dollars in loans through the program, while mom-and-pop businesses were often left out in the cold.

The Biden administration is also taking measures to prioritize sole proprietors and self-employed individuals in search of financial relief, by revising the loan calculation formula for such businesses and setting aside $1 billion for those located in low- and moderate-income areas. It is also eliminating restrictions preventing small business owners with prior felony convictions or delinquent federal student loans from tapping PPP funds, and is clarifying guidelines enabling non-citizen small businesses owners who are lawful U.S. residents—such as green card and visa holders—to apply for aid using their Individual Tax Identification Numbers (ITINs).

As the White House noted, many of these measures are designed to ensure equitable access to PPP funds for minority-owned businesses, which have been disproportionately impacted by the pandemic and have also been underserved by the program to date. For instance, roughly 70% of non-employer businesses are owned by women and people of color, while a “disproportionate number” of delinquent federal student loan borrowers are Black.

The Biden administration added that its emphasis on better reaching underserved small businesses is already paying dividends. Since the most recent round of PPP funding opened in January, it says the share of funds going to small businesses with fewer than 10 employees is up nearly 60%, while funding to small businesses in rural areas is up nearly 30% and funding through Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) is up more than 40% “compared to the same point in the program last year.”

The moves outlined Monday have been welcomed by small and minority business advocacy groups, though some pushed the administration to take further action. Ashley Harrington, director of federal advocacy at the Center for Responsible Lending, urged Congress to retroactively apply the revised loan eligibility rules for sole proprietors to existing PPP loans, citing similar measures taken to benefit small farmers and ranchers prior to the latest round of PPP funding.

“We must ensure all vulnerable businesses have equitable access to the relief they need to weather this crisis,” Harrington said in a statement.

As part of its efforts to crack down on PPP fraud, the White House said it is enhancing Small Business Administration loan reviews and making PPP loan guarantee approval “contingent on passing SBA fraud checks,” a change from the previous round of the program. 

The Biden administration added that it is revamping the PPP application to “encourage self-reporting of demographic data,” with an eye to better capturing the program’s impact across various population segments. The administration is also conducting outreach efforts with small and minority business groups to “inform the design and delivery of vital programs that meet their needs,” it said, while also launching a new SBA initiative meant to deepen the agency’s relationship with lenders and “improve access to capital for small businesses.”