PPP LOANS WILL BE FORGIVEN, BUT DON’T ASK HOW

New forgiveness forms, rules given, but a lot still unclear

When the federal government began the Paycheck Protection Program in April, one rule was clear to smallbusiness owners bedeviled by its chaotic and messy start: If most of the loan money was used to pay employees, the debt would be forgiven.

But as the program enters its loan forgiveness phase, those owners — and their lenders — are finding out that although the principle may have been simple, its execution is anything but.

Many lenders have yet to start accepting applications from borrowers to have the loans forgiven. They are waiting to see whether Congress will pass a proposal to automatically forgive debt of less than $150,000, which makes up the bulk of loans made under the program.

On Thursday night, the Small Business Administration, which runs the program, released new forgiveness forms and rules for loans under $50,000. Such loans make up nearly 70 percent of the program. The new rules mean that some borrowers can still have their loans forgiven even if they cut head count or wages after taking the loan, but they will have to submit payroll documents and other records.

Lenders said the change was a start but did not go far enough. The Consumer Bankers Association, an industry trade group, renewed its call for all loans under $150,000 to be automatically discharged.

“It’s almost a nightmare to go through the forgiveness process as it is now

written,” Richard Hunt, the group’s chief executive, said. “You have millions of small businesses in crisis, some going under, and Congress is not there in their time of need.”

Lenders said they were also wary of processing applications without knowing how crucial aspects of loan forgiveness will work, like how carefully they are expected to vet borrower-provided documents like payroll records. They are waiting for details on the Trump administration’s stated plan to audit all loans over $2 million. And they are getting nervous about whether they will be paid back by the government for loans they made to businesses that have since closed or gone bankrupt.

More than 5.2 million business owners borrowed a total of $525 billion through the paycheck program, which used banks and other lenders as conduits to issue the loans. From April to August, small businesses were encouraged to borrow cash to cover eight weeks of payroll and a handful of other expenses. Once the money is spent, borrowers must apply through their bank to have their loan paid off by the government.

But business owners looking to start the loan forgiveness process have found lenders mostly unwilling to work on those applications until there is clarity from Congress, especially because of the cost and complexity of handling fairly small loans. Loan forgiveness proposals have been introduced in both the House and Senate with bipartisan backing — Treasury Secretary Steven Mnuchin said he was a supporter — and were likely to be included if Congress passed an economic relief bill, but the fate of such legislation is uncertain, with the presidential election just weeks away.

Ed Sterling, president of Flagler Bank in West Palm Beach, Fla., said lenders had been “waiting on the edge of our seats” for legislative action. The process for reviewing a loan forgiveness application will take his bank about three times as long as it took to actually originate the loan, he said.

The SBA has been slow to act on loan forgiveness applications that lenders have sent in. The agency began accepting the forms Aug. 10. By late September, it had received 96,000 but had not yet approved or denied a single application, William Manger, the agency’s chief of staff, said at a House subcommittee hearing. By law, the agency has 90 days to respond after it receives an application. An SBA representative said the agency sent its first approvals and loan payments to banks Oct 2.

Most borrowers — and their lenders — can afford to wait before seeking loan forgiveness. The coronavirus relief bill, which created the PPP, initially set repayments on any remaining debt to begin six months after a loan was disbursed, but Congress later revised the law to give borrowers as long as 16 months to apply for forgiveness. For most borrowers, that means the issue won’t become urgent until mid-2021.