Small business owners that received taxpayer-subsidized Paycheck Protection Program loans of $150,000 or less will be able to seek forgiveness directly with the government through an online portal starting Wednesday, allowing them to sidestep the private financial institutions that ran most aspects of the program for 14 months.
The policy change, contained in a new regulation published Wednesday, was framed by the Small Business Administration as a way to quickly wind down the huge emergency loan program, which gave approximately $806 billion to millions of small businesses between April 2020 and June 2021.
The loans were attractive to borrowers because they had an interest rate of just 1% and can be entirely forgiven at taxpayers' expense. The loan forgiveness process, however, has been more difficult than many expected, leaving some small business owners worried they will have to pay off an unexpected debt.
The vast majority of those waiting for forgiveness fall under the $150,000 threshold, according to the Small Business Administration. They are primarily sole proprietors or so-called microbusinesses that have just a few employees.
"This initiative will allow PPP borrowers to put their concerns of achieving full forgiveness behind them and focus on operating and growing their businesses again," Patrick Kelley, associate administrator for the agency's Office of Capital Access, said in a statement.
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The Consumer Bankers Association, an industry trade group, said letting the government handle loan forgiveness applications would help banks and borrowers move on.
"The creation of a new PPP forgiveness platform from the SBA will allow more small businesses to focus their time and resources on successfully reopening, while also providing lenders the choice to retain oversight of their customer relationships," association CEO Richard Hunt said in a statement.
The move to a direct forgiveness portal represents a significant departure from how the loan program was designed.
The program relied on banks to manage most aspects of the loans with very little government intervention. This allowed it to move quickly in the early months of the crisis ― far outstripping a parallel government-run program ― as financial institutions of all sorts quickly processed the loans and pocketed fees.
But the loan forgiveness process has been much slower. In some cases, banks have been reluctant to accept loan forgiveness applications because they are unsure whether they can process them within the required two-month window.
"Because lenders are overwhelmed by the volume of PPP loans and are mindful of the statutory 60-day requirement for lenders to issue a forgiveness decision to SBA from receipt of the borrower's loan forgiveness application, lenders are limiting when loan forgiveness applications are accepted from borrowers, creating uncertainty among borrowers that they are going to have to start making payments on their PPP loans," the Small Business Administration explained in the regulation posted Wednesday.
The agency disclosed it had received feedback from some small banks that they did not have the technology or staff to process the loan forgiveness applications promptly. The loan forgiveness process entails significantly more paperwork than issuing the loan in the first place, in part because it requires borrowers to take the step of proving that the loan was needed.
For most of the program's lifetime, banks were allowed to effectively take borrowers at their word with respect to need ― something that sped up loan approvals but increased the risk of fraud.
As of May 24, the latest date for which the agency published loan forgiveness information, 3.3 million loans had been forgiven and another 145,000 were under review. The agency estimated at the time that there were 1.7 million applications it was yet to receive.
In addition to the new loan forgiveness portal, the agency is also reducing the documentation requirements for some of the smallest businesses.
For businesses to seek forgiveness directly from the agency, their bank will have to "opt in" to the agency's direct portal. Several participating banks said Wednesday that they would do so.