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Lenders, Borrowers Face Confusion and Roadblocks Over PPP Forgiveness

  • Only a fraction of borrowers who received funds under the Paycheck Protection Program have applied for loan forgiveness, and no loans have yet been forgiven
  • Frustration over the forgiveness program has caused roadblocks and led some businesses to worry about unforeseen debt
  • Increased calls for a streamlined forgiveness process, including the possibility of automatically forgiving loans under $150,000

Only a small fraction of borrowers who received funds under the Paycheck Protection Program have applied for forgiveness, and so far not a single loan has been forgiven. Both borrowers and lenders have voiced criticism about complications in the forgiveness process, including the possibility that businesses will be saddled with unexpected debt.

The Small Business Administration had received just 96,000 PPP forgiveness applications late last week out of the 5.2 million borrowers who collected $525 billion to maintain their companies’ payrolls. PPP loans are forgivable if a company meets certain conditions, but increasing complications with the program ultimately reduced the program’s appeal and resulted in about $134 billion in unallocated funding when it ceased accepting applications on Aug. 8.

Similar complications and delays are causing confusion with the forgiveness process, with the Consumer Bankers Association reporting that four out of five forgiveness applications required followup due to errors or omissions. Questions have arisen on how to handle certain situations, such as how to handle applications from business owners who are looking to sell their company, how soon companies can lay off workers or cut employee pay if they seek forgiveness early, and whether companies will be on the hook for part of their loan if they applied for both PPP and a separate SBA disaster aid program.

In two recent House subcommittee hearings, legislators heard from lenders and borrowers who criticized the forgiveness application process as too confusing. Lenders who have processed forgiveness applications say they have not heard back from the SBA, and many are advising borrowers to hold off on submitting applications under the process is clarified.

Lenders have increasingly called for a more streamlined process, particularly for loans under $150,000 – the vast majority of those issued. Automatically forgiving these loans would result in an estimated administrative savings of $7 billion.

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