Small-Business Loans Will Be Forgiven, but Don’t Ask How  <font color="#6f6f6f">The New York Times</font>

When the federal government began the Paycheck Protection Program in April, one rule was clear to small-business owners bedeviled by its chaotic and messy start: If most of the loan money was used to pay employees, the debt would be forgiven.

But as the program enters its loan forgiveness phase, those owners — and their lenders — are finding out that although the principle may have been simple, its execution is anything but.

Many lenders have yet to start accepting applications from borrowers to have the loans forgiven. They are waiting to see whether Congress will pass a proposal to automatically forgive debt of less than $150,000, the bulk of the loans made under the program.

Square, the mobile payments company, lent Audrey Kramer $5,600 in May to pay the only employee of Sweet Treat Stop, her mobile food truck bakery in San Francisco. She has been ready since July to apply to have the debt wiped away, but Square hasn’t started taking applications. It sent her an email this month saying it was “waiting to release our forgiveness application until we get more information from Congress.”

released new forgiveness forms and rules for loans under $50,000. Such loans make up nearly 70 percent of the program. The new rules mean that some borrowers can still have their loans forgiven even if they cut head count or wages after taking the loan, but they will have to submit payroll documents and other records.

Lenders said the change was a start but did not go far enough. The Consumer Bankers Association, an industry group, renewed its call for all loans under $150,000 to be automatically discharged.

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“It’s almost a nightmare to go through the forgiveness process as it is now written,” Richard Hunt, the group’s chief executive, said. “You have millions of small businesses in crisis, some going under, and Congress is not there in their time of need.”

Lenders said they were also wary of processing applications without knowing how crucial aspects of loan forgiveness would work, like how carefully they are expected to vet borrower-provided documents like payroll records. They are waiting for details on the Trump administration’s stated plan to audit all loans over $2 million. And they are getting nervous about whether the government will pay them back for loans they made to businesses that have since closed or gone bankrupt.

the fate of such legislation is uncertain, with the presidential election just weeks away.

Ed Sterling, the president of Flagler Bank in West Palm Beach, Fla., said lenders had been “waiting on the edge of our seats” for legislative action. The process for reviewing a loan-forgiveness application will take his bank about three times as long as it took to originate the loan, he said.

The Small Business Administration has been slow to act on loan forgiveness applications that lenders have sent in. The agency began accepting the forms on Aug. 10. By late September, it had received 96,000, but had not yet approved or denied a single application, its chief of staff, William Manger, said at a House subcommittee hearing. By law, the agency has 90 days to respond after it receives an application. A representative of the agency said it had sent its first approvals and loan payments to banks on Oct 2.

Lynn Ozer, a banker who specializes in small-business lending, said borrowers she worked with at Fulton Bank in Lancaster, Pa., were “panicked” at the prospect that their forgivable loans would become debts if they made mistakes on their paperwork.

“We can’t help our borrowers if we ourselves don’t understand the guidance,” Ms. Ozer said.

Trapped in the middle are business owners like Léa Kujala, a co-owner of Northwest Treatment, a counseling center near Portland, Ore. Ms. Kujala got a $34,000 loan in April, which helped her and her business partner retain their three employees when their revenue nose-dived.

Now, Ms. Kujala would like to get the loan paid off, but her lender, U.S. Bank, has not yet opened its forgiveness portal to her. Ms. Kujala — who estimates that she has already spent five hours gathering records and preparing her application — is so concerned about the loan’s many rules and potential tripwires that she is keeping all of the money she got in a reserve account, just in case her loan isn’t forgiven. (She drained her business’s savings to make payroll, and will pay that back if her loan is discharged.)

later revised the law to give borrowers as long as 16 months to apply for forgiveness. For most borrowers, that means the issue won’t become urgent until mid-2021.

But there, too, the law has a gray area. More than four million borrowers — a majority — have loans that were made before the rules changed. To scrupulously follow the law, lenders would need to formally modify those loans and get each borrower’s signature on the changes. That’s a “momentous task,” said Brad Bolton, the chief executive of Community Spirit Bank in Red Bay, Ala.

The Small Business Administration has not yet responded to banks’ requests for clarification on the matter — and payments for the program’s earliest borrowers are scheduled to come due this month.

Most lenders, especially the biggest ones, have decided to take the risk and simply postpone all payments, said Tony Wilkinson, the chief executive of the National Association of Government Guaranteed Lenders, a trade group.

“Because it’s a benefit to the borrower, they’re doing it unilaterally, because who is going to object?” he said.