On September 1, 2021, Tracy Ward, director of the SBA 504 Loan Program at Self-Help Ventures Fund testified before the House Committee on Small Business. Her written testimony as well as her oral remarks are available for download.
Ward focused on the following recommendations, which we believe are necessary to correct inequities in the PPP forgiveness process:
- Avoid “gotcha” denials of loan forgiveness due to sudden changes in SBA rules imposed without advance notice by requiring SBA to retroactively apply a standard 30- day grace period for effectiveness of PPP rules changes that made eligibility or loan amount calculation more restrictive. Implementing this change to rules that imposed limitations on broad CARES Act provisions or added clarifying restrictions to previously issued rules would significantly reduce forgiveness denials for microbusinesses that applied in good faith under PPP rules in place within a reasonable time of their application, fully expecting the loans would be forgiven. This is an issue of fundamental fairness that should apply to all borrowers impacted by these sudden changes, whether or not they have already submitted their forgiveness application to SBA.
- Rescind SBA Procedural Notice 5000-20078 (issued on January 15, 2021), which requires borrowers to return PPP loan amounts received due to “borrower or lender error made in good faith” even where the borrower spent the funds for eligible purposes in good faith reliance on promised forgiveness. Given that ambiguities in the initial rules and the chaotic program roll-out made good-faith errors inevitable, SBA should forgive all borrowers who acted in good faith but were confused into unintended errors, provided they spent their funds properly. It is especially crucial that this grace be extended to microbusinesses – those with loans of $150,000 or less – that lacked access to the assistance of legal and accounting professionals to help them avoid mistakes, that are least able to repay moneys already spent to survive the pandemic, and that are most likely to be forced to shut down if they are burdened with unexpected debt.
- Improve borrower access to the SBA’s Direct Forgiveness Portal by requiring opt-in to the SBA portal by lenders that (a) do not have their own online forgiveness portal; (b) have not submitted applications for forgiveness for at least 75% of their PPP loans within twelve months of the loan disbursement date; or (c) have been found by the SBA to have regularly failed to be responsive to borrower requests for submission of their loan forgiveness application.
- Alleviate unnecessary paperwork burdens for the smallest businesses by expanding the use of simplified forgiveness application Form 3508S to loans of up to $350,000 and by implementing automatic forgiveness for loans of $25,000 or less.
- Improve SBA’s loan review process to ensure fraudulent activity is prosecuted and borrowers who applied in good faith are not unfairly penalized by focusing SBA’s manual review efforts on larger loans. SBA should balance the incidence and severity of likely fraud against the harmful impact of extensive delay and uncertainty on small businesses and nonprofits that acted in good faith.