WASHINGTON – Today, small business owners (full statements below) from Illinois, Texas, Maryland, California, Washington, and North Carolina joined with U.S. Representative Chrissy Houlahan (D-PA), American Business Immigration Coalition (ABIC), and the Center for Responsible Lending (CRL) and Small Business Majority (SBM) to Demand the Small Business Administration (SBA) reform the “good faith error” rule, one of more than 60 rules passed by SBA during the pandemic, which prevents lenders from forgiving the loans that are now devastating more than 300,000 American small businesses with more than $3.7 billion in Paycheck Protection Program (PPP) loan debt.
Not fixing this rule will disproportionately harm Black-, Latino- and immigrant-owned businesses. Even with limited data on the race of PPP borrowers, it is clear that by making forgiveness more burdensome for microbusinesses, entrepreneurs of color are more likely to be left with PPP debt. More than 95 percent of all Black-owned businesses, and over 90 percent of all businesses owned by people of color, have ten or fewer employees.
“As a US Representative, my job is to solve problems and make the lives of those in my community better,” said Rep. Chrissy Houlahan. "When I began hearing stories of small businesses who are incurring additional debt from PPP loans due to faults with the 'Good Faith Error' rule, I knew we needed to draw attention to the issue. It was an honor to stand with these small business owners today and continue to call on the SBA to reform its PPP rules to make good on the promises SBA made during the pandemic.”
“For two years, these small businesses, desperate for relief and struggling just to pay the interest and fees on their loans, have been played as pawns in a game of ping pong,” said ABIC Director of Small Business Recovery Ken Kimber. “SBA tells them that it’s the bank’s prerogative to forgive the debt, but it’s actually up to SBA to change the policy, known as the ‘good faith error’ rule.”
“Despite their best efforts to comply with rapidly changing PPP rules, many of the smallest businesses now owe an unexpected debt that threatens their very survival. This burden is disproportionately shouldered by microbusinesses and businesses owned by people of color,” said Center for Responsible Lending Researcher Sunny Glottmann. “Congress and the SBA should rescind the Good Faith Error rule and remove additional barriers to loan forgiveness.”
Small Business Owner Statements
Ember Seaman, owner of Mad Ethel’s Tattoos in Raleigh, NC: “As I have taken on all of the expenses of a single mom with no help, shock is not a strong enough word to describe the feeling when I was told my repayment plan would be $9,761.26 per month.
“The sinking feeling, exasperation, desperation, fear of losing my home, business and children, and the defeat I felt resulted only in a laugh, because there was nothing else I could do. This feeling multiplied when my finance charges jumped from $48 a month, to over $1,500 a month.
“Since COVID and the whole PPP debacle, we have spent the last two years without a microwave. Our dishwasher died shortly after. The toilet upstairs needed fixing, so we turned the water off almost two years ago. Our stove and oven have started bursting into flames when lit, so we don’t light it. We don’t have a working HVAC upstairs, so we installed individual AC units in some of the bedrooms, but me and the kids all live downstairs now. My car electronics have been glitching for the past year or two, I’m not even sure how long – all I know is that it’s the car that isn’t drivable anymore, despite the fact that I haven’t even paid it off yet, and so it sits, month after month in our driveway, lifeless.
‘To call the whole PPP experience stressful is a gross understatement. The chronic fatigue and sometimes dire state of my mind are something I can’t even articulate, and although I continue to work steadily on my case, my hours have become less effective over time, due to the fatigue. I don’t sleep well anymore, and I find myself having more accidents.
‘Our health is affected. Our relationships are strained, and our business continues to shoulder the never-ending burden of this program.”
Rob Stokes, owner of Assured Solutions computer consulting in Dallas, TX: "Assured Solutions applied for, and was granted, a PPP loan in the amount of $23K from our bank on 5/3/2020. We strongly monitored and paid business rent and utility bills, as well as contractors per the 40%/60% rules. The loan saved our company as half our customer base dried up due to COVID. It wasn't until mid-June of 2021 that we were able to complete the first forgiveness application. Our bank originally perfectly calculated our 24 week business expenses but when it came time for forgiveness, they used a completely different calculation method resulting in offering only $1,182.71 forgiveness. How exactly does $1,182 pay for 24 weeks of anyone's business expenses? The excess $22k is now considered an overage error which we were otherwise counting as a grant. Our customer base has not regrown back to pre-COVID levels. We have continued to take out personal loans to keep the company afloat totaling $12K post-COVID. We are now making payments of $674.93 every month for fear that not paying will hurt the credit we have been extended and thus, place us out of business. Forgiving that $22K would greatly help us push our company until full customer base returns or is replaced. We need the SBA to reconsider the Good Faith Error rule and allow businesses like mine the opportunity to clear off the debt and return to our services.”
Amy Yassinger, owner of Yazz Jazz Music and Productions in Deer Park, IL.: “Over 10 years ago, I started a small business that is focused on providing live music and entertainment for weddings and other social events. All of that came to a screeching halt in 2020 during the COVID shutdowns.
“The CARES act, which established PPP, appeared to be the answer for my business to stay alive, and allowed me to support my team. Following the expenditure guidelines for "forgivable expenses", I used the PPP proceeds to pay my team a portion of what they would have made if those events had not been canceled. The pandemic is not over for small business owners like me because we are unable to get full forgiveness of our PPP loans. It’s unfortunate that I have to be here today fighting for the survival of my small business.
“I am one of over 300,000 small business owners struggling to get the forgiveness we were promised and assured we would receive. This is the busiest wedding season in Chicago since 1984 and I should be THERE, focused on my business. Instead I’m in DC for the second time in a month with other small business owners trying to get a solution to this problem.
“The SBA guidelines have changed over 80 times in two years which is not a problem for large corporations because they have teams of attorneys and accountants that help them navigate the changes. Many of us survived through this global pandemic using the PPP funds believing we were doing the right thing. And now we have spent over 20 months trying to get full forgiveness for our PPP loans. Congress created the law, the SBA designed guidelines based on the law and then banks were supposed to follow those guidelines in order to help small businesses.
“We have now become ping pong balls between the bank, the SBA, and congress who have the capacity to fix this insurmountable debt for over 300,000 businesses who employ millions of people. We are voters who deserve to get help from the SBA. This will not go away. This has harmed thousands of people and will continue to do so if it doesn’t get fixed. Either Isabel Guzman needs to rescind the Good Faith Error rule. Or Congress needs to create a solution so that we can breathe again. We have been thrown into a game that we never signed up to be part of. Over 304,000 small businesses across the country are suffering with the SBA not stepping up to the plate to provide proper oversight on banks to fully forgive PPP loans.”
Adam Levine, owner of Mar Sid Limited home restoration firm in Los Angeles, CA: “The PPP funds made it possible for my team to pay their bills and have food to eat while we waited for Buildings and Safety to reopen and issue our permits. In the face of new and unprecedented challenges we managed to revitalize a beautiful Spanish house and turn a modest profit. Through that gain my team was able to continue working, acquire a next project and miraculously survive yet another year. During the last 20 months my team has looked on while I’ve had to hire an attorney, do endless hours of battle with the lender, the SBA, and pursue a biased appeals process in which I had next to no input. As a result they feel so guilty over what I have been through in order to do the right thing and take care of them that they constantly try to insist on repaying me the loan out of their individual salaries, on which they just get by.
“Any entrepreneur worth his salt will tell you that the single defining property of being a business owner is that you never, ever stop fighting; to survive, and to thrive. We are here today to continue that fight, we will not give up on the promise made—and owed to us by the government.”
Mabel Delgado, owner of Aurora Environmental Services, Inc. in San Francisco, CA.: “I am the owner of Aurora Environmental Services, a small environmental health and safety consulting services firm in San Francisco California. I flew here on Sunday morning to accompany my fellow business owners to pre scheduled meetings with our respective representatives. I believed it was of the utmost importance to help bring to their attention the injustice, unfairness, and disrespect each one of us has been dealing with not only with our PPP lender but with the agency established to support and protect America’s smallest businesses. I should be running my business but because for over a year, I, like the business owners behind me, have tried numerous times to communicate with the SBA to find out the true status of my PPP Loan Forgiveness application but I have not been successful. After waiting for 90+ minutes on hold, I get transferred, and transferred again only to be ultimately disconnected. We have all experienced this frustrating practice but in the small business world, time equals money and quite honestly we have run out of both. “We are extremely disappointed and frustrated by how we are ignored, dismissed, and tossed back and forth like a ping pong to our Lender, our representatives, and the SBA. We believe the SBA was tasked with the ultimate responsibility to ensure all small businesses in America received what was promised when we were forced to shut our businesses down.
“On March 23, 2020, our Governor due to the COVID pandemic ordered the bay area to shelter in place. The San Francisco Bay Area was one of the first regions in CA to shut down. The shutdown was supposed to last 2 weeks. In April we were in essence still in lockdown. With my employees’ best interest at heart, I applied for a PPP loan in the amount of $115K, 2.5 times the monthly payroll amount. I did so because I care about each one of them, and because I also trusted the agency tasked with administering the Paycheck Protection Program.
“My application was approved and thankfully I received the full $115K. Two weeks later, I received a call from Bank of America’s representative who told me I “qualified for more based on my corporate tax returns” and a “special formula given by the bank. “All you have to do is amend your application and I will submit it to the SBA for approval” the representative told me. I agreed and in less than 36 hours an additional $263K in PPP funds was deposited into my business account. It truly was a blessing in disguise because as we all know the shutdown lasted more than six weeks.
“Here I am today in Washington DC two plus years later because Bank of America and the SBA have shut the door in my face and have left me, a small business owner with an unforgiven loan in the amount of $406,000 though every cent was spent on W2 payroll and business qualifying expenses. Our monthly loan payment is an outrageous $13K a month and it comes with a 2 year term.
“So I ask the SBA - who should I lay off first, then second and third and so I am able to attempt to make such ridiculous outlandish payments for a loan you were responsible for approving and turning into a grant? I feel betrayed and used by everyone on this hill who turns a blind eye. We need you to act today, do the right thing for my business and for the hundreds of thousands of businesses across our country who have been severely impacted by your lack of program oversight and accountability.”
John Arensmeyer, Founder and CEO, Small Business Majority: “Our research shows that microbusinesses and smaller firms are still working to recover from the pandemic. Supply chain and workforce challenges continue to disrupt our nation’s economic recovery. Loans like the Paycheck Protection Program relieved the small business community during a period of unpredictability. The Good Faith Error Rule threatens recovery progress and penalizes under-resourced small business owners who relied on the Congressional promise to help them keep their businesses afloat. A broken promise should not burden America’s job creators. The Good Faith Error Rule should be reversed, and our small businesses should be allowed to receive full forgiveness for their loans.”
The Paycheck Protection Program (PPP) was created with good intentions to help small businesses survive the pandemic economy. At the onset of COVID-19, Congress came together quickly to prevent the mass unemployment of American workers by offering fully forgivable loans to small businesses. Congress promised businesses that if PPP funds were used to retain staff and pay operating expenses, the PPP loan would be forgiven. The idea was to keep the economy moving and people employed while the country figured out the pandemic’s impact.
The PPP rollout moved quickly. Rules were being issued quickly by the SBA – 20 such rules in April 2020 alone – while banks were approving loans, and telling businesses that if they spent the money correctly the loans would be forgivable. However, on January 15, 2021, the SBA issued Procedural Notice 5000-20078 or the “Good Faith Error” rule, which breaks the promise made by Congress and places an extra burden on small businesses, microbusinesses, and self-employed individuals.
The Good Faith Error Rule requires lenders to deny forgiveness for any excess PPP loan amount received due to good-faith errors of the borrower or the lender. If the business got a loan for more than they qualified for, even if that mistake was made by the bank, and even if that money was spent correctly, the SBA ruled the business was responsible for paying back the excess loan amount.
But after having received PPP loans, and spending the money to keep their workers employed and on other acceptable expenses, small businesses owners are being told they received too much money and must pay back the loan with interest. Today more than 300,000 small business owners are told they owe more than $3.7 billion in combined debt.
With debt payments eating into their bottom lines, these businesses now face the dire consequences of having to downsize their operations and lay off employees.
American Business Immigration Coalition (ABIC) is a bipartisan coalition of over 1,200+ CEOs, business owners, and trade associations across 17 mostly red and purple states. ABIC promotes common sense immigration reform that advances economic competitiveness, provides companies with both the high-skilled and low-skilled talent they need, and allows the integration of immigrants into our economy as consumers, workers, entrepreneurs, and citizens.
The Center for Responsible Lending is a non-partisan, nonprofit research and policy advocacy organization working to create financial fairness and economic opportunity for all, end predatory lending, and close the racial wealth gaps.