Washington (CNN)The Treasury Department relaxed a standard for its Paycheck Protection Program this week so that most small business owners who received a loan won't have to worry about getting audited.
That shift comes as some who got loans are saying they're worried about spending the money -- and demand has slowed for a second round of funding.
Under the terms of the program, originally created as part of the $2 trillion congressional coronavirus relief package in March, borrowers were supposed to certify "in good faith" that they need the money and couldn't find liquidity elsewhere. But this week's update clarified that those whose loans are smaller than $2 million won't have to worry about proving why they need the money.
That covers about 99% of borrowers and about 78% of the loans, Treasury Secretary Steven Mnuchin told reporters at the White House Thursday. Companies with loans over $2 million, which are all being reviewed, will have until May 18 to return the funds without penalties.
The program, which launched last month, offers forgivable loans to small business owners as a ways help them keep employees on the payroll during shutdowns related to coronavirus. It drew public outrage as some larger companies -- like Shake Shack and the Los Angeles Lakers -- were awarded money in the first round while small mom-and-pop shops were still waiting.
But borrowers have been frustrated with how the rules of the program keep changing and there remains a lack of clarity around how exactly the loans will be forgiven. It's made some business owners afraid to spend the money and may be keeping others from taking the money in the first place.
There was so much demand for the loans in the beginning that the first $350 billion round of money ran out in less than two weeks. Congress replenished the program with another $310 billion, but demand has slowed after a big rush of loans were made in the first few days of the second round. There was still more than $100 billion left as of Thursday.
But worry over a possible audit wasn't the only thing concerning business owners. Here's what else they need to know.
Limits on how the money can be spent
The program restricts how the cash can be used in order to qualify for forgiveness. Currently, a business owner must spend 75% of the money on payroll. The rest can be used to pay mortgage interest, rent, or utility bills.
The goal of the program was to keep workers paid, but many business owners are struggling to meet that requirement. Some find that, with a separate congressionally-approved $600-a-week boost to benefits, their workers are earning more on unemployment than they would by coming back to work -- especially if business has slowed and hours are reduced.
"It's completely counter-intuitive to bring employees back when there isn't work necessary for those positions," said Holly Wade, director of research at the National Federation of Independent Business, which is pushing for more flexibility.
A report from the Small Business Administration's Inspector General found that "tens of thousands of borrowers would not meet the 75% payroll cost threshold and therefore have to repay the amount of nonpayroll costs in excess of 25% in less than two years."
Business owners are required to spend the money in 8 weeks
When the program was approved, eight weeks may have seemed like a reasonable time frame for spending the money. But some businesses still haven't opened their doors, with stay-at-home orders still active in many states and cities -- and the eight-week deadline is quickly approaching. Those who were among the first to receive a loan in April will need to spend the money before June 1.
There's a lot of support from industry groups and lawmakers for extending the eight-week period. House Democrats have proposed extending it to 24 weeks.
Florida Republican Sen. Marco Rubio, chairman of the Senate's Small Business Committee, also supports extending the deadline. He told reporters Wednesday that he'd like to see Congress make some technical changes to the program by Memorial Day.
But Republican leaders are urging caution, worried that moving forward with a narrow fix could open the door to negotiations with Democrats who are pushing for trillions in dollars in new programs to help bolster the economy.
"My guess is before the Memorial Day recess is unlikely," Republican South Dakota Sen. John Thune told CNN. "I don't think those are things you can do quickly. It will probably be part of a larger bill that will happen later."
The rules keep changing
Lenders and business owners are also still waiting for more guidance on how exactly the loans are forgiven once the eight weeks are up. The government was required to issue more clarity on those rules days ago.
Meanwhile, they have to check the SBA website daily for changes to its guidance -- which has been updated about a dozen times since the program launched.
Borrowers will have to show the banks how they have spent the money. If they fail to meet all the requirements, the loan must be paid back over two years at a 1% interest rate.
"At end of the day, the program and the intent here was much needed and will definitely keep small businesses alive," said Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America.
"But I think the lack of having clear guidance from the beginning is maybe limiting the total number of businesses it could have supported," she added.
