Small businesses get easier path to relief-loan forgiveness

Small-business owners won’t have to pay back their federal pandemic relief loans even if they don’t rehire all of the workers they laid off, the Trump administration affirmed, effectively eliminating a rule that many borrowers had feared would leave them stuck with a large debt.

Congress appeared to relax that requirement this month with a new law that loosened many terms of the Paycheck Protection Program, a $660 billion relief effort intended to help struggling small companies retain or rehire their workers. But the final say on how the law would be interpreted rested with the Treasury Department, which has called the shots on most aspects of the relief effort.

On Wednesday, the agency and the Small Business Administration, the program’s manager, released new loan forgiveness forms that slashed documentation requirements and will give many borrowers an easy pathway to having their debt eliminated.

The forms added a “safe harbor” option that allows borrowers to simply affirm they were unable to operate “at the same level of business activity” they had before the crisis because of government requirements or safety guidance, including social distancing rules.

Those borrowers can have their loans fully forgiven if they meet the program’s other rules, including a requirement that they spend at least 60% of their aid money on payroll.

The specifics about what qualifies a business as “unable to operate” at its previous level remain unclear, said Sonia Desai, a director at Weaver, a tax accounting firm.

“That’s really vague,” she said. “I hope there will be additional guidance.”

But that is likely to be an issue only for the largest loan recipients. The Treasury Department has said it will audit loans of more than $2 million; those with smaller loans will generally face less scrutiny.

Self-employed business owners and other borrowers with fairly straightforward cases will be able to use a new, shorter “EZ” form to seek loan forgiveness. Unlike the old form, it does not require detailed employee information and other documents to prove a claim. (Lenders will still be asked to review and verify some of those records.)

“This is a step in the right direction,” said Aimee Brierly, a spokeswoman for the Small Business Majority, an advocacy group that had called for the loan forgiveness process to be simplified.