By: Sarah Johnson
With the additional unemployment benefits expired last week and no presented plan acceptable to both the Senate and House, what is next with pandemic relief for Americans is up in the air. This week, we’ll take a closer look at some COVID legislation introduced in May, the Reviving the Economy Sustainably Towards A Recovery in Twenty-twenty (RESTART) Act.
Why the RESTART Act?
The RESTART Act is a bipartisan bill primarily aiming to address the shortcomings of the Paycheck Protection Program (PPP) for the most-affected businesses through providing them flexible, targeted relief. According to the Small Business Association, the PPP “is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.” To find out more about what the PPP is, what issues have arisen from it, and the first and second implementations of it read this blog. The RESTART Act aims to extend the covered period for the government to deploy PPP funds, offering loans for up to a year and granting partial loan forgiveness for an expanded list of business expenses.
One of the major issues with the PPP has been its short duration and how the help it offered actually turned out for small businesses or those disproportionately impacted by the pandemic (think travel, restaurants, event venues). The ways the world has changed and the issues brought on by COVID will not be resolved in weeks or months (as we have seen), these impacts are still yet to be fully understood and will last years. Many of the United State’s small businesses need more flexible support for a longer period of time.
What is the RESTART Act?
At its core, the RESTART Act provides a PPP loan recipient with 16 weeks to use funds if the recipient has less than 500 full-time employees and has suffered a decline in revenues of at least 25% throughout the pandemic. The bill would also establish a program that would require the SBA to guarantee 100% of program loan amounts made to small businesses with less than 5,000 full-time employees. This program would require the maximum loan duration is no more than seven years, an amount no greater than 45% of 2019 gross receipts for the business (up to $12 million), and no payment on the principal for the first two years of the loan.
The loans part of this new program would have the following Interest Rates/Payment Schedule:
- Fixed interest rate between 2% and 4% for the first 2 years
- No interest payments due for first 12 months
- Payments of interest only for next 12 months
- Interest rate for years 3 to 7 is the Applicable Federal Rate (AFR) plus a spread of 250 – 450 bps, based on revenue decline
- Restrictions on dividends/share buybacks/executive compensation for duration of loan with special rules for pass-through entities
- Nonprofits would have access to longer-duration loan (up to 10 years), with a lower interest rate in the first four years
Businesses could borrow enough to pay their costs for six months. The amount businesses could borrow is based on what half the levels of the following items were in 2019: total payroll (up to $100k per employee), employee benefits (for both current and furloughed employees), rent, utilities, and mortgage payments for existing mortgages and other scheduled debt service as of February 15, 2020.
When it comes to loan forgiveness, the bill states the following: The level of forgiveness is based on loss in revenues and may be applied for within 2 years of loan origination. There will be no requirement to increase staffing beyond what business conditions dictate. Small Business Forgiveness (<500 employees) is based on a formula including percentage decline in revenues for Payroll + Benefits + Operating Costs. Larger businesses follow same forgiveness, except for payroll (i.e. benefits and operating costs fully included but not payroll). Nonprofits would have access to a loan, but would not be eligible for forgiveness. Nonprofits would instead have a longer duration (e.g. up to 10 years) and/or a lower interest rate for their loan terms.
News About the RESTART Act
With benefits expiring and campaigns from impacted businesses, traction for the RESTART Act has ramped up in recent weeks. When speaking about the bill, Senator Michael Bennet (D-CO), the bill’s sponsor, said,
Expanding the amount of time and flexibility businesses have to use PPP funds and receive forgiveness is essential but insufficient to address the crisis they face. If we want to see small businesses reopen and stay open, we need to help them weather the second half of the year. My bipartisan RESTART Act would provide a much-needed lifeline to the hardest-hit businesses, like restaurants, hotels and motels, theaters and concert venues, and gyms. We should work quickly to pass the RESTART program into law so our Main Street businesses can survive and get to the other side of the pandemic.
The #SaveOurStages campaign, organized by the National Independent Venue Association, has resulted in more than a million emails sent to Congress urging passage of the RESTART Act. Other major organizations have publicly supported the legislation as well, including: the Grammy Awards, the National Association of Theatre Owners, the American Society of Travel Advisors, and the Equipment Leasing and Finance Association.
On top of these organizations, musicians are also promoting the #SaveOurStages campaign and advocating for the passage of the bill. These musicians range from the Lumineers to Lady Gaga to OutKast to the Foo Fighters to Dillon Francis. The Lumineers advocated for this act to protect a Colorado gem, the Boulder Theater, which is about to celebrate its 100 year anniversary; after surviving the Great Depression and two World Wars the coronavirus crisis threatens to shut it down. CEO of Z2 Entertainment, Cheryl Ligouri, who owns the Boulder Theater had this to say about the pandemic,
“For a lot of these venues, with debt mounting, it could be three years before life is back to normal, and a lot of people will continue to struggle until they get to that point. A lot of what’s in the bill is really going to be very helpful in that situation.”‘
Time will tell to see how these small businesses survive COVID and what life post COVID looks like for businesses heavily reliant on full occupancy.
Cover Photo by Richard Clyborne of Music Strive