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The biggest hurdle for the Paycheck Protection Program, which has already been plagued by technical glitches and complaints of misallocated funds, could come when the process of forgiving billions of dollars in loans begins.
So far, the agency has distributed more than 2.2 million loans worth close to $175.7 billion, or a little over half of the $310 billion in funding allotted by Congress. That’s in addition to the $349 billion loaned out in just 13 days during the program’s first round of funding.
Under the program, which was established at the end of March as part of the $2.2 trillion CARES Act, businesses with fewer than 500 workers can secure low-interest loans of up to $10 million. If at least 75 percent of the money goes toward maintaining payroll — including salary, health insurance, leave and severance pay — for eight weeks, the federal government will forgive it.
The remaining 25 percent can be spent on operating costs like rent and utilities, but may not go toward mortgage principal or pre-payments. Money spent on non-qualifying expenses must be repaid at an annual rate of 1 percent within two years. No payments are required during the first six months.
“Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels,” the Small Business Administration said on its website. “Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.”
But small business owners have cited confusion and uncertainty around the forgiveness process.
Naomi Pomeroy, who owns both a small restaurant and cocktail bar in Portland, Oregon, told Eater that because of the vagueness surrounding the loan forgiveness rules, some small businesses are being advised to hold onto the money until the SBA releases additional guidelines to avoid being held liable for the money.
“Going into an uncertain economic future and restaurants with extra loan obligations sounds like a recipe for disaster,” Pomeroy said. “So I think for almost everybody that received a PPP, their goal is to have it 100 percent forgiven, and because the guidance is still being fine tuned, let’s call it, from the SBA, the recommendation has been to hold onto it for as long as you can.”
For instance, a business that receives a $100,000 loan must use at least $75,000 on payroll costs if they want the federal government to forgive it. Payroll expenses are capped at $100,000 per employee. The loan amount is based on payroll size before coronavirus-mandated shutdowns caused a surge in layoffs, which could make it more challenging for business owners to spend three-fourths of the aid on workers.
As a result, some banking groups are pushing the SBA and Treasury Department to issue a standard forgiveness form for borrowers and to create a calculator so that every bank produces the same outcome when using the same data, according to Reuters.
“From a banking perspective, we are really acting as a middleman here. We don’t want to carry these loans on our books,” David Pommerehn, general counsel of the Consumer Bankers Association, told Reuters. “We see this as potentially a bigger mess than the funding process."