Sen. Ron Johnson, a Wisconsin Republican, seeks to ensure that businesses receiving federal loans to help cover payroll expenses during the pandemic actually need the help by limiting how the loans are forgiven.
Last month, Washington enacted legislation that provided forgivable loans to small businesses. The loans became available earlier this month. Since then, reports have surfaced that the program is not working as intended, which has undermined its public support. On Wednesday, Treasury Secretary Steven Mnuchin warned companies that were granted relief to give the money back if they didn’t qualify for the loan.
Johnson said companies are taking advantage of the economic crisis by applying for a loan when they are not facing financial hardship.
“Everyone who drafted and supported the Cares Act had the best of intentions in providing financial support to individuals, businesses and other organizations suffering during the coronavirus crisis,” Johnson wrote in the Wall Street Journal, adding that “the minimal requirements for loan qualification, designed to speed relief, have allowed employers to obtain … loans even if they aren’t in financial distress and have no need or intention to lay workers off.”
Johnson wants to introduce legislation that would not allow forgiveness if a business’s 2020 taxable income is higher than 2019 levels. Full forgiveness would be granted if total receipts were less than 60% from the prior year. For businesses with results that fall in between, the proposal would create a sliding scale for how much of the loans would be forgiven.
Loan forgiveness for tax-exempt entities would be based on whether net assets from 2020 exceed those from 2019.
The senator stressed that this is a “preliminary proposal” and that he is accepting feedback on it from his colleagues.
“Making these limitations on forgiveness retroactive may seem unfair. But businesses and nonprofit organizations that didn’t need this program shouldn’t be rewarded with loan forgiveness for taking advantage of it,” he wrote.
Sen. Marco Rubio, a Republican from Florida and chairman of the Small Business and Entrepreneurship Committee, announced on Monday that his committee will use subpoena power to review compliance with the loan’s rules.
“This fall, the Senate Committee on Small Business and Entrepreneurship will conduct aggressive oversight into the use of the [program]. If companies are not forthcoming, the Committee will use its subpoena power to compel cooperation,” Rubio announced.
