Feds: Small business loans can be canceled if employees don’t return to work


Washington — The federal government said it plans to change its loan program for small businesses affected by the coronavirus pandemic, making it easier to forgive loans and turn them into cash grants.

Small business owners have complained that it would be difficult to meet the Paycheck Protection Program requirements for loan forgiveness.

Employers must dedicate at least 75% of a loan to payroll for it to be forgiven, a measure aimed at helping companies retain or quickly rehire employees at existing salary levels.

But some business owners said they couldn’t meet the 75% requirement because too many laid-off employees had turned down rehire offers. Reasons for the rejections include concerns about potential exposure to the virus and that some employees are making more money collecting unemployment.

The CARES Act passed by Congress in March guarantees all laid-off workers an additional $600 per week (until July 31) from the federal government if they are approved by their states for unemployment insurance. The federal payment is in addition to the amount the states provide each week, a maximum of $504 in New York.

The US Small Business Administration this week proposed new guidance on forgiveness of PPP loans.

The SBA and the Treasury Department proposed a rule that would exclude terminated employees from the loan forgiveness calculation if the business owner offered to rehire workers for the same wages and hours.

“The Interim Final Rule will clarify that, to qualify for this exception, the borrower must have made a good faith written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower,” said the SBA in the latest addition to the Frequently Asked Questions (FAQ) section of its website.

“Employees and employers should be aware that employees who reject offers of re-employment may lose their eligibility for continued unemployment compensation,” the SBA added.

SBA and Treasury Department officials did not explain how the forfeiture process would work.

Unemployed workers who refuse to return to work or quit their job are not normally eligible for unemployment benefits. But the bill passed by Congress and signed into law by President Donald Trump in March makes an exception for those who quit their jobs as a “direct result of COVID-19.”

RELATED STORY: A problem for New York businesses: Workers won’t come back if they can get ‘unemployment on steroids’

More than 30 million Americans have filed for unemployment since mid-March as the coronavirus pandemic plunged the US economy into its steepest decline since the Great Recession.

New York has paid $4.6 billion to 1.6 million unemployed workers since non-essential businesses were ordered to close in March.

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