Months after the federal Paycheck Protection Program stopped taking applications for forgivable small business loans, banks and lenders are still unclear on how to forgive them.
The new simpler form, released Friday, is supposed to make it less complicated for those who borrowed up to $50,000. But it isn’t as simple as some had hoped, said Nim Patel, chief strategy officer for the nonprofit Colorado Enterprise Fund, which had an average paycheck loan size of $23,000.
“After reviewing (the simpler form) we have concluded that the form is not for a blanket forgiveness of $50,000 and less, but does make it slightly simpler,” Patel said in an email. “I say ‘slightly’ because there are still documentation submission requirements, complex calculations the applicant is expected to perform, and still review requirements of those documents on the part of the lender.”
Borrowers must still submit payroll costs, taxes and verification of other business expenses, like mortgage interest, lease and business rents and utility payments. There’s also a note on the new form saying those who make false statements face up to 30 years or fines of up to $1 million.
“At this time we don’t see this new form changing our stance on waiting for forgiveness,” Patel said.
The paycheck loan program helped 109,170 small businesses in Colorado borrow $10.4 billion to help pay employees when COVID-19 safety restrictions were implemented in March. If terms were met, the loans would be 100% forgiven, according to the U.S. Small Business Administration rules.
But what started in April as a loan intended to provide money to pay workers for eight weeks — whether they worked or not — changed to allow businesses to use more of the money on non-payroll expenses and have more time to do so. While that first round of borrowers saw their eight weeks end by early June, forgiveness has barely begun as the SBA continues to add new rules and guidance.
“Still not much to report,” Bruce Alexander, president and CEO of Vectra Bank, said when contacted in late September about paycheck loan forgiveness. “We have had a small percentage of customers apply for forgiveness. We have gotten most through our own process and have submitted to the SBA for approval but have had no response from them as of yet.”
Over at FirstBank, the lender said in a statement that it is finally moving ahead and hopes to have its system up “in the next two weeks, pending no additional required changes. Once our systems are available, we will notify our customers.”
The wait also has some borrowers anxious, including Susan Baca, a Realtor with Re/MAX of Boulder who, after reaching out to five banks, ended up getting a PPP loan from the Colorado Enterprise Fund in late April.
“Well, I’ve reached out to them twice now to say ‘Hey, I’m ready,’” Baca said. “And their response is the SBA hasn’t told us what criteria we need, which is interesting because I’ve heard other people have already received their forgiveness.”
On Oct. 1, the Wall Street Journal reported that the SBA would begin forgiving loans on Oct. 6. An online portal for borrowers seeking forgiveness was already up to 96,000 applications but none had been forgiven, according to the Journal’s story.
An SBA spokesperson said that the agency began “approving forgiveness applications and remitting forgiveness payments to PPP lenders” on Oct. 2. She did not share how many have been forgiven or are in the queue.
There’s anticipation among many lenders and borrowers that loans of up to $150,000 will be forgiven with just a certification by the borrower that the money was used according to guidelines.
Some expect Congress to add such wording in future coronavirus stimulus legislation, as well as open it up to larger loans, said Amanda Averch, a spokeswoman with the Colorado Bankers Association.
The CBA is asking for “almost automatic forgiveness” of loans of up to $150,000 and a more streamlined process for loans larger than that, she said.
“Loans in excess of $50,000 still face a complex application process that takes lots of time and causes frustration for the borrower and bank alike,” she said.
The CBA is also advocating that the forgiven loans won’t be counted as income for a small businesses’ tax purposes.
According to SBA data, 68.6% of the 5.2 million PPP loans were at $50,000 or less. Loans at $50,000 and below made up 12% of the $525 billion total approved for small businesses.
In Colorado, 88% of small businesses approved for paycheck loans were less than $150,000. The Colorado Sun received a PPP loan.
But even as paycheck loans proved so popular at first that the $349 billion program ran out of money after two weeks, Congress made another $310 billion available during a second round of loans in late April, the program petered out. Extended for six weeks, the program had more than $130 billion available for loans at the end on Aug. 8.
Patel, with Colorado Enterprise Fund, said Congress is still negotiating so they could approve simpler terms for more borrowers because, he said, “we know blanket forgiveness of loans under $150,000 is still on the table for those negotiations, so we remain hopeful that the overall process for over 80% of our borrowers will be simple soon.”
This story was updated on Oct. 14, 2020 at 5 p.m. to include comments from the Small Business Administration.