Kim Gathers Small Business Owners and Lenders to Shed Light on PPP Loan Forgiveness Problems
Today, the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access, led by Rep. Andy Kim (D-NJ), inspected issues related to the Small Business Administration's (SBA) Paycheck Protection Program (PPP) loan forgiveness process. Small business owners and lenders testified on problems they have encountered while navigating the loan forgiveness process.
"Loan forgiveness is a centerpiece of the Paycheck Protection Program, especially since the expectation by many borrowers and lenders was that the loans would be fully forgiven," said Rep. Kim. "Less than full forgiveness for a large body of loans could have serious unintended negative consequences for borrowers and lenders who have developed business plans around full loan forgiveness."
Lawmakers designed PPP to offer full or partial forgiveness on loan proceeds spent on payroll costs and other expenses. Small business owners and lenders have voiced concerns with the loan forgiveness process since the SBA released their initial borrower's application for forgiveness on May 18th. Even after the SBA release of a simplified "EZ" application in June, PPP participants contend that the application process is burdensome and confusing. Some small businesses go as far as to call it a "Full-time job". Lenders report having to partner with third-parties to simplify applications for borrowers or reduce their backlog of applications. These issues have contributed to a lack of overall loan forgiveness decisions. As of September 8th, 2020, SBA had received just 56,000 forgiveness decisions, just over 1% of the 5.2 million PPP loans made.
The prospect of less than full forgiveness weighs on the small businesses who participated in the program and are still struggling to stay afloat. During the hearing, members heard from lenders and borrowers about their loan forgiveness experience and its impact on their business. Lawmakers also discussed proposals that would streamline the process to maximize relief for borrowers and protect taxpayer funds.
"The complexity of the forgiveness process is one of the factors that, in my opinion, has resulted in a very low submission rate of forgiveness applications to SBA," said Lynn Ozer, President of SBA Lending at Fulton Bank in Pottstown, PA. "Borrowers and lenders simply have been unable to complete the application process because they do not fully understand the requirements for forgiveness, and are reluctant to submit incorrect applications that could cause them to lose the forgiveness to which they are entitled, or worse, get into trouble with the federal government."
"This could be the circumstance that leads to providers throwing in the towel, whether mentally or financially," said Amy Bonfig, Owner of Little Saints Academy in St. Joseph, MN. "We cannot afford to lose any additional quality childcare centers because of this forgiveness in a time when we are experiencing an extreme childcare shortage. The application seems intentionally difficult. Please consider an automatic forgiveness or at least a forgiveness process with fewer criteria."
"Many (small businesses) are going into this process themselves without the help of an expert staff member," said Jim Parker, CEO and Director of Riverview Studios in Bordentown, NJ. "I know if it were left for me to sort this process out, I'd be in far worse shape. And without the strong relationship with my bank, I'd be much more concerned about the handling of my application. Which is why it's important that we not repeat the mistakes of the loan disbursement process in the loan forgiveness process."
"As Congress weighs solutions for small-dollar PPP borrowers seeking forgiveness, we must keep in mind that simplicity will be key for most small businesses," said Rep. Kim. "The simple fact is these firms, especially microbusinesses, do not have accountants or attorneys on staff, and would therefore face additional and unnecessary barriers to accessing full loan forgiveness. The agencies should come together once again and provide a streamlined loan forgiveness application for small-dollar borrowers, who represent the vast majority of all PPP borrowers."