One of the main draws of the Paycheck Protection Program was the ability to have loans forgiven if the money was used as the law permitted — with 60% of the capital going to payroll and 40% to other allowable expenses. But as forgiveness opened up last month, some banks and small businesses are reporting difficulty navigating the process, and advocates are pushing for simplicity for already struggling companies.
According to the Consumer Bankers Association, banks estimate that as many as 80% of forgiveness applications that have been submitted by small businesses are requiring additional follow-ups to reconcile errors or find missing information. The EZ form, which allows businesses that meet certain qualifications to apply via a simplified process, is not as easy as advertised, CEO Richard Hunt says.
"Many of these are not simple issues to resolve, requiring an average of four to five communications between the small business and the bank to remedy the issue. The SBA EZ form is, simply, not easy for the overwhelming majority of small business owners and still requires the completion of some complicated calculations," Hunt said in a statement.
A recent report from the Government Accountability Office found questions remain about the forgiveness process, pointing out that the Small Business Administration issued rules and guidance on a "rolling basis." The report added that "applying for loan forgiveness is more time consuming than applying for the PPP loan itself." The CBA, along with the International Franchise Association, requested of the Treasury Department and the SBA that all rules and guidance in the next wave of PPP enhancements be finalized before going into effect.
The SBA did not immediately respond to a request for comment.
More than 100 trade groups have asked Congress to pass legislation streamlining the forgiveness process for loans of under $150,000, which make up the vast majority of loans made under the PPP. When asked about potential legislative tweaks to the forgiveness process at a Senate Banking Committee Hearing on Thursday, Treasury Secretary Steven Mnuchin told lawmakers there is bipartisan support to go beyond the EZ form that was created for businesses, but added that businesses shouldn't wait for legislation to move ahead with applying.
"We believe we need additional legislation to simplify beyond what we've done. We want to maintain fraud protection," Mnuchin said. He added that he would encourage borrowers that received loans of under $150,000 to "move quickly and ... not wait for legislation. But if we could get legislation that would be great."
Data from the National Federation of Independent Business released last month found borrowers were waiting for lenders to start accepting loan forgiveness applications, and the group's report said "many small business owners still find the EZ form complicated and confusing." The group found that 43% of members surveyed planned to use the EZ form and 62% were not sure which forgiveness form they should use.
And some are finding that even though they want to apply for forgiveness, they are not immediately able to. Paul Hoodless, owner of Rose Dry Cleaners in San Antonio, Texas, said he is eager to see if loans are forgiven below the $150,000 threshold, adding that his bank wasn't ready to accept his forgiveness application late last month.
"We filled out all our paperwork immediately and went to turn it in for the forgiveness, but they weren't accepting the forgiveness papers, as there seems to be anticipation that there will be ongoing changes in process," he said. "Potentially, since ours is considered small, it is likely to get in a category under $150,000 for total forgiveness."
Karen Kerrigan, president of the Small Business & Entrepreneurship Council, said both banks and businesses are waiting for more clarity and potential changes to the process.
"Small business owners are keeping an eye out for additional changes to PPP and perhaps more guidance, including forgiveness simplification, and many have been advised to wait it out a bit longer — this of course has created some anxiety," Kerrigan said. "Banks are waiting for clarity, certainty and reassurance as well. Why expend significant resources on setting up a forgiveness system when there may be a legislative or rule change that enable a less bureaucratic and costly forgiveness system?"