Commentary: With PPP loans ended, what comes next?

Motor carriers assist every other mode of transportation when it comes to last-mile deliveries. They are a key part of intermodal activities and, as such, facilitate trade in both retail and industrial markets. Therefore, it should come as no surprise that motor carriers took an active part in the Paycheck Protection Program (PPP) run by the U.S. Small Business Administration (SBA). 

The SBA works with companies that have fewer than 500 employees. The funds, totaling $659 billion, were provided under the Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law on March 27. The transportation and warehousing sector received about $20 billion in loans disbursed across around 200,000 companies.

However, on Aug. 8 the PPP program ended. Loans were actively sought across a variety of industries, with the average being around $110,000. Some of the largest were $10 million. About 5 million companies joined the program and around 90% received loans of less than $150,000.

PPP loans required no collateral. They carry an interest rate of 1% and mature in two years if the loan was issued before June 5. Loans issued after that date mature in five years. Recipients have up to 24 weeks to disburse their funds among employees and for other qualifying expenditures. Loans issued more recently must have their funds disbursed by Dec. 31 since the 24-week period cannot extend into 2021.

PPP loans were also extended to companies with single owner-operators who, therefore, do not issue paychecks. Loan recipients with employees are required to use the funds to maintain payrolls. About one-third of payrolls in the motor carrier sector benefited from some PPP loan support. Sole proprietors with no employees, like owner-operators, are expected to use their PPP loans to maintain self-employment income.

Another feature of PPP loans is their potential forgiveness instead of having to pay them back upon maturity. If approved, the forgiveness would kick in after disbursal of funds. Companies with employees would not be eligible if, during the period of the loan, the average employee’s wage fell by more than 25% or there was a reduction in the number of employees. Basically, companies must show that at least 60% of the loans were used to keep employees on the job. 

On the other hand, owner-operators as well as companies with employees can cite nonpayroll-related expenses in order to make a case for loan forgiveness. These expenses include mortgage interest, rent and lease payments. Even utility payments are eligible. The current deadline to apply for loan forgiveness is Oct. 31.

Whether or not outstanding PPP loans are forgiven, access to easy credit just got a little harder for motor carriers. Is this a bad thing? The better question is, how should governments handle the economic consequences of emergencies like the COVID-19 pandemic? Should it be through broad programs like payroll tax cuts, direct payments to individuals (so-called “helicopter money”), etc.? Should it be through more targeted programs like PPP loans? Some may argue that these loans just kept foundering companies afloat. Whether or not this is true, the basic economics of the motor carrier sector are hard to overcome.

Being a highly competitive and pro-cyclical mode, the market forces at work since Aug. 8 will sort things out soon enough. The spot market’s ups and downs reflect changes in carrier capacity and shipper uncertainty amid recent COVID-19 spikes. Political uncertainty over further stimulus — whether it be broad or targeted — is yet one more wild card. If PPP loans have improved a motor carrier’s cash flow and balance sheet, now is the time to leverage it. Investing in new technology and digitization may prove to be money well spent.

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