H.R. 6800 - the Heroes Act

Summary

A House Small Business Committee Democrats document describing H.R. 6800, the Heroes Act, as a set of changes to the Paycheck Protection Program (PPP) and other Small Business Administration programs. It states that the bill would create a 25% carve out for small businesses with 10 or fewer employees and a 25% carve out for nonprofits. It would extend the 8-week period to 24 weeks, extend the covered period from June 30 to December 31, and establish a minimum maturity on PPP loans of 5 years. The document also states that the bill would eliminate the 75/25 rule on use of loan proceeds and increase the annual lending limit of the 7(a) program from $30 billion to $75 billion.

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                                H.R. 6800 - the Heroes Act
                         House Small Business Committee Democrats

On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security Act (CARES) was
enacted into law, providing emergency assistance for small businesses and eligible nonprofits
affected by the Coronavirus pandemic (COVID-19). The CARES Act established the Paycheck
Protection Program (PPP), a new guaranteed loan program at the Small Business Administration
(SBA) to help small businesses cover payroll and other expenses during the crisis, with 100 percent
of the amount eligible for forgiveness if employers retain employees. The CARES Act also created
a new $10 billion grant program, leveraging SBA’s Office of Disaster Assistance to provide small
businesses with much needed capital in a timely manner. Congress intended that these programs
would provide immediate financial support to secure the survival of the small business community.

While recognizing the implementation of these new programs is a tall order for a small agency like
the SBA, critical problems have emerged with the rollout of the Paycheck Protection Program that
threaten the survival of small businesses across the country. That is why House Democrats propose
the Heroes Act, which would make immediate fixes to strengthen the PPP, ensuring small
businesses in desperate need of funding are able to stay afloat. The Heroes Act also shores up
funding for the depleted EIDL grant program, injecting much needed capital into our small
businesses.

Strengthen the Paycheck Protection Program
The Heroes Act would make important fixes to the Paycheck Protection Program and provide
much-need clarity for Main Street small businesses. Specifically, the bill:

   •   Amends PPP funding by:
         o 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);
         o 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;
         o Creating a carve out of 25% of the funds solely for the use of all nonprofits, no
            matter their size or type;
                 Requires that at least half this amount go to small nonprofits under the 500-
                    employee threshold;
                 Prohibits compensation of lobbyists from counting toward PPP loans; and

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           o 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.
   •   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;
   •   Adds expenses related to equipping workers with personal protective equipment (PPE) and
       other equipment or supplies determined by the employer to be necessary to protect the
       health and safety of employees to the definitions of allowable uses of loan proceeds and
       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 and the eligibility of housing cooperatives;
   •   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 and clarifies that cooperative housing
       corporations are eligible;
   •   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 CARES Act 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 of previously allocated funds for purposes of translations services
       for all materials, applications, and websites related to COVID-19; and
   •   Ensures the principal and interest loan assistance is not treated as taxable income to small
       business borrowers.

Expand Economic Injury Disaster Program
The Heroes Act provides more assistance through the Economic Injury Disaster Program by:

   •   Appropriating an additional $10 billion for Emergency EIDL Grants to remain available
       until expended.


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Support SBA’s Core Programs
Recognizing the need to move into the next phase of economic recovery, the Heroes Act
implements a number of proven strategies within the many lending programs at SBA that were
utilized after the Great Recession. The bill temporarily tailors SBA’s programs to the needs of
small businesses as the nation looks toward a long-term recovery, in addition to strengthening
the cybersecurity posture of the SBA itself. The bill specifically:

   •   Reduces the cost of capital by waiving fees associated with the SBA 7(a) and 504 loan
       programs for borrowers and lenders, including the Community Advantage and Export
       loan programs;
   •   Expands the pool of availability capital for small firms by increasing the annual lending
       limit of the 7(a) program from $30 billion to $75 billion;
   •   Incentivizes lenders to make loans by temporarily increasing the guarantee up to 90% on
       traditional 7(a) loans, and increasing the guarantee on Express loans to 90% on loans up
       to $350,000 and 75% on loans greater than $350,000;
   •   Enhances the 504 refinance program to reach more small businesses who need to
       refinance expensive fixed assets and lower their payments;
   •   Boosts the SBA microloan program with an additional $72 million in loans, increases
       how much each lender can lend from $6 million to $10 million, and gives borrowers an
       extra two years to repay;
   •   Includes SCORE and Veteran Business Outreach Centers (VBOCs) as eligible SBA
       entrepreneurial development resource partners so they can access $10 million each in
       previously appropriated sums for the purpose of assisting businesses during the
       pandemic; and
   •   Strengthens the cybersecurity of the Small Business Administration by directing SBA to
       issue reports that assess its cybersecurity infrastructure and reporting cyber-threats,
       breaches, and cyber-attacks.




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                   What these Changes Mean for Small Businesses

Reach Underbanked Communities and Rural Areas That Were Left Behind
SBA’s interim final rule states that the Paycheck Protection Program is a “first-come, first-serve”
program, creating a sense of urgency amongst small businesses to apply before the funds run dry.
With that said, lenders are not required to process the loans in that manner, and lenders have given
preference to existing clients shutting out small businesses, particularly the underserved and small
“mom and pop” stores that lack a cadre of attorneys, accountants, and advisors. To make sure
farmers, women-, and minority- owned small businesses don’t get left behind, the bill:

   •   Creates an additional set aside of money specifically for community development
       corporations (CDCs), Microloan Intermediaries, community development financial
       institutions (CDFIs), and Minority Development Institutions (MDIs) to focus on lending
       to underserved communities.

Prioritizes the Nation’s Smallest Businesses, Independent Contractors, Sole Proprietors, and
the Self-Employed
The CARES Act requires SBA and the Department of Treasury to issue an emergency rule within
15 days of enactment of the law. Instead, the SBA rolled out guidance in a piecemeal manner
forcing lenders to rely on incomplete and ever-changing information. The guidance left out vital
information about eligibility of businesses and nonprofits, failed to inform lenders on how to close
loans and provide forgiveness, and made it easier for large businesses to take advantage of the
program. To make sure truly small businesses receive the assistance they need, the bill:

   •   Creates a 25% set-aside of funds solely for small entities with 10 or fewer employees and
       once expended, they would still be able to access assistance in the general PPP fund; and
   •   Mandates that any cancelled loans be redistributed to small entities with 10 or fewer
       employees.

Recognizes the Contributions of America’s Nonprofits and the Challenges they Face
The CARES Act made 501(c)(3) entities eligible for PPP loans, which left out many nonprofits on
the frontlines of the pandemic. Anecdotal reports also indicate that eligible nonprofits are
experiencing much difficult accessing PPP assistance. In order to help nonprofits, the bill:

   •   Creates a 25% set-aside of funds solely for nonprofits;
   •   Expands the eligibility to allow all nonprofits to participate;
   •   Removes the size restrictions on nonprofits; and
   •   Prohibits any lobbyist compensation from counting as payroll costs for PPP loans and
       certain nonprofits from obtaining PPP loans if they engage or intend to engage in certain
       political, campaign, or electioneering activities.




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Provide Flexibility to Paycheck Protection Loan Borrowers
Small businesses have 8 weeks to spend the PPP loan proceeds on payroll, mortgage interest, rent,
and utilities. Under SBA rules, the 8-week period begins on the date the borrower received the
disbursement of the loan, regardless of whether the business is permitted to reopen. Currently,
small businesses must choose between paying employees not to work or forgoing the debt
forgiveness altogether. The bill:

   •   Extends the Paycheck Protection Program to December 31, giving small businesses an
       extra two months to apply for working capital loans and more time to seek forgiveness for
       the loan proceeds;
   •   Gives borrowers a 24-week period, giving them flexibility to wait out shelter in place
       orders and still remain eligible for forgiveness;
   •   Removes the requirement that 75% of loan proceeds be used for payroll since many small
       businesses will be unable to return to pre-pandemic operational levels;
   •   Provides a safe harbor for borrowers who are unable to rehire for a number of reasons,
       including rehiring workers by the December 31 deadline or the inability to operate at full
       capacity for safety reasons; and
   •   Ensures that expenses related to protecting worker and consumer safety, such as personal
       protective equipment (PPE) and plastic barriers are allowable uses of loan proceeds and
       forgiveness.

Protect Small Business Borrowers on Loan Repayments
Small businesses are eligible for loan forgiveness. However, SBA and Treasury have failed to
issue guidance on forgiveness, which has left many business owners worried they may not be
granted forgiveness. The Heroes Act:

   •   Extends the loan terms from two years to five years to lower monthly payments and extend
       repayment;
   •   Clarifies that interest accrues on a simple interest, non-compounding basis to provide
       additional cost-savings for borrowers who must repay the loans; and
   •   Mandates data collection and reporting on forgiveness.

Allow Borrowers with Minor Criminal Records to Participate in PPP
According to the Sentencing Project, one in U.S. adults have been arrested by age 23. With that
said, SBA has issued confusing and frequently changing eligibility guidance for people with
criminal records. The Heroes Act makes it easier for borrowers with low-risk criminal histories to
obtain PPP loans.

Eases the Burdens on Hospitals to Participate in PPP
Current guidelines prohibit otherwise-eligible entities undergoing bankruptcy proceedings from
receiving a PPP loan. The bill creates a narrow exception for critical access hospitals that are
undergoing Chapter 11 bankruptcy reorganizations. While these entities are few, they are vitally
important to the communities they serve, both as frontline providers during this public health
emergency and as anchor institutions that provide the paychecks and local economic stability that
Congress intended this program to preserve. These institutions need temporary financial assistance
to weather sharp revenue decreases while remaining operational to serve local communities.

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Streamlines the Interaction between the Employee Retention Credit and PPP
In addition to PPP, the CARES Act allows a tax credit for wages paid to employees to encourage
businesses to retain workers. This section coordinates the tax credit for businesses that do get their
loan forgiven and for those that do not get their loan forgiven. First, it does not allow the tax credit
to be taken for PPP loans that are forgiven. Doing so would allow businesses a double benefit.
However, there will be some businesses that took a PPP loan and do not get it forgiven. The IRS
issued guidance saying businesses cannot use the tax credit if they get a PPP loan. This section
explicitly states that businesses that took out a PPP loan, and do not get their loan forgiven, can
utilize the tax credit for wages paid to employees.

Increases the Education and Outreach for Small Businesses
The CARES Act appropriated funds for SBA’s Small Business Development Centers (SBDCs)
and Women’s Business Centers (WBCs). This bill amends this section to clarify that SCORE and
Veterans Business Outreach Centers (VBOCs) are also eligible to receive $10 million each in
financial assistance to ensure small businesses across the nation have all the resources available to
them as they navigate the pandemic.

Strengthens the Cyber Posture of the Small Business Administration
Media reports indicated the Small Business Administration (SBA) permitted sensitive,
personally identifiable information of thousands of Economic Injury Disaster Loan (EIDL)
applicants to become exposed. In recognition of the task the SBA has taken on to assist in the
federal response to COVID-19, the Heroes Act requires directs the SBA to issue reports that
assess its cybersecurity infrastructure and report cyber-threats, breaches, and cyber-attacks.




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