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PPP Loan Forgiveness Rules: Bait and Switch?

Wednesday, September 1, 2021
Aracely Panameño

House Committee on Small Business Hears Testimony on Faulty Forgiveness Rules for the Paycheck Protection Program

WASHINGTON, D.C. – Experts in small business lending today told a House committee that confusion around the rules of the Paycheck Protection Program (PPP) is inadvertently saddling many of the smallest businesses – disproportionately owned by people of color – with unanticipated debt.

“SBA implementation of this unprecedented program was remarkably fast – but it came with a complex and constantly changing set of rules,” Tracy Ward, Director of the SBA 504 Loan Program at Self-Help Ventures Fund, told the House Committee on Small Business. “Congress placed the burden of understanding these rules on small business borrowers, quite a challenge for small businesses in survival mode, scrambling to access limited funds. As a result, many of the smallest businesses are not getting promised forgiveness, even when they have spent every penny properly.”

The PPP is an $800 billion pandemic relief program designed to keep small businesses afloat with loans that were intended to be forgivable if borrowers used them appropriately. Ward said confusion in the rules of the program, quickly designed and implemented due to the urgency of the need for COVID-19 relief, exacerbated structural inequities that favor well-resourced businesses. As a result, many businesses that took the loans relying on forgiveness are instead facing debt, uncertainty, and a more precarious financial position. These include sole proprietorships, independent contractors, self-employed professionals, owners of food trucks, childcare centers, salons, and many other small businesses.

Ward said that without changes, those inequities will continue in the forgiveness phase. For example, an Illinois microbusiness received a much-needed loan of just under $20,000, but because the rules had changed just days earlier, he is not eligible for forgiveness.

“In this on-going crisis, small businesses need responsible follow-through on PPP’s promise so they can get back to running their businesses and employing their communities. Without changes, the forgiveness stage of PPP will exacerbate pre-existing inequities, and for many of the smallest businesses, will turn Congress’s promise into a bait and switch,” said Ward.

“Without these immediate changes, Congress and the Small Business Administration risk contributing to the racial wealth gap through policies that continue to disadvantage socially and economically marginalized Black, Latino, and other communities of color,” said Aracely Panameño, Director of Latino Affairs at the Self-Help affiliated Center for Responsible Lending.

Self-Help and the Center for Responsible Lending made the following recommendations:

  • Eliminate “gotcha” denials of loan forgiveness due to sudden changes in rules that were imposed without advance notice;
  • Rescind SBA’s January 15, 2021 rule denying forgiveness to borrowers who made good faith errors. This is deeply unfair, given the frequent rule changes;
  • Require lenders to opt in to SBA’s Direct Forgiveness Portal if they are unduly slow processing forgiveness or are unresponsive to their borrowers;
  • Alleviate unnecessary paperwork burdens for the smallest businesses by allowing more businesses to use the streamlined Form 3508S, and by automatically forgiving loans of $25,000 or less – loans to microbusinesses that overwhelmingly should qualify for full forgiveness; and
  • Improve and refocus SBA’s loan review process to ensure fraudulent activity is prosecuted, and that borrowers who applied in good faith are not unfairly penalized.

Find Tracy Ward’s full written and oral testimony and view the hearing here.

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