The Roadblocks on the Road to PPP Loan Forgiveness


On September 1, 2021, I attended a meeting of the United States House Committee on Small Business to provide testimony on behalf of Affinity Credit Union and the National Association of Federally-Insured Credit Unions. The committee sought to learn how it could make the process for Paycheck Protection Program (PPP) loan forgiveness easier.

Right now, the loan forgiveness application can be a mountain to climb for some small businesses, and with the lingering pandemic still greatly impacting day-to-day operations, small business owners should not have to dedicate any more time and resources to PPP loan forgiveness than necessary.

There are many roadblocks for both borrowers and lenders that need to be addressed. These were discussed at the meeting, while representatives from other institutions and I also talked about what we have been seeing on the lender side throughout the forgiveness period.

Obstacles in the loan forgiveness process

The loan forgiveness applications and process to apply for forgiveness through a borrower’s lender are typically online, ignoring the fact that many of the small businesses may not have easy access to a computer or the technological comfort with how to navigate the online process. The complexity of the forgiveness rules and application have made this a time consuming and frustrating process. The program was intended to help business owners focus on operating their business; however,the forgiveness application is taking more time away from actually managing their business. For example, a restaurateur may be distracted by trying to navigate the ever-changing health restrictions in order to continue serving their patrons and providing staff with hours to work. Borrowers need and deserve for this process to be as seamless as possible.

The message from the very beginning of the SBA PPP was that these loans were forgivable if the funds were applied for and used per the PPP guidelines. A confusing and difficult process has only added stress to these small business owners.

The SBA has made attempts to simplify the process, first by creating a simplified loan application for small loans; however, businesses may still be faced with providing supporting documentation. Many businesses had to employ the help of third parties, such as accountants to assist them in the process. 

The SBA has developed a direct portal for forgiveness applications. Lenders must opt into this portal in order to allow their borrowers to utilize. This portal helps those lenders that did not have the resources to set up their own automated systems or hire additional staff to process the applications. However, a large number of financial institutions were proactive over a year ago and either developed their own platform or contracted with a third party vendor for a platform and may have hired additional staff to handle the PPP forgiveness. At Affinity, we hired temporary employees and invested in a software platform to facilitate the forgiveness process.  We have dedicated resources and made a significant investment to this as we are committed to helping our members every step of the way. If a member applies through the SBA direct portal, we cannot help our member navigate that system. Additionally, Affinity and all lenders are still required to review and decision the forgiveness application in the SBA’s portal, so this becomes a more manual process.

Affinity has opted into the SBA direct portal to give our members every opportunity at forgiveness; however I believe the SBA is being very heavy-handed in pushing for their portal to be adopted by all lending institutions. 

Raising loan limits to simplify the process

There are three types of forgiveness applications: the 3508S, 3508EZ and 3508. The 3508S is by far the easiest of the three to complete, because the borrower has to submit fewer documents and the process is more streamlined, without extensive calculations and addendums. Right now, the 3508S is only used for loans under $150,000, but we want to see that limit raised to $350,000.

I believe that the more loans we can simplify the process for, the better and the SBA can then focus their resources on larger and riskier loans. This includes limiting loans that go under review with the SBA to those larger loans as well. Originally, Affinity experienced 10% of forgiveness applications going under review, which is a time consuming and confusing process for both the borrower and the lender. 

Some reviews may be legitimate, stemming from a typo in a Social Security number or other small mistake, but many feel very random. It is not in the best interest of the lender, borrower, or SBA to spend time reviewing smaller loans. If the loan limit is raised to $350,000, this process will become a lot faster and easier for all sides. The forgiveness application process, in general, should be simpler for more borrowers.

Good faith forgiveness

In the first months of the PPP loan process, at the height of the pandemic, errors were made by both borrowers and lenders that might cause an application to get pulled for review or for that borrower to receive only partial forgiveness.

When PPP loans were first announced, there was so much changing guidance as different aspects evolved on a daily basis. Someone could submit their paperwork and be subjected the next day to new clarifications or requirements. For example, if I gave a loan to someone in the beginning of April, and the guidance changed three weeks later, the borrower would be held to that new standard.

Each loan should be looked at on its own merits; however, if the error was made in good faith and the use of funds was a permitted use, I believe these loans should be considered for full forgiveness.

Biggest challenges for small businesses with a PPP loan

Many small businesses do not have an internal financial specialist or even an office manager, so the business owner is left handling all aspects of the loan forgiveness process, while still continuing to run their business. It has been difficult for the lenders, let alone the small business owner to understand the rules of the PPP program and forgiveness. Itcan be difficult for them to figure out what documents are needed, and then track these down to send to the lender. Some documents might be with their accountant, who could take a couple days to gather everything. Meanwhile, the business owner feels the pressure to get the loan off the books.

From my experience I have seen thatthere is a lot of uncertainty surrounding PPP forgiveness. Small business owners have questions about the portal, the information requested on the application, what, if any, documentation needs to be provided and how long will the process take.For instance, simple aspects like the coverage period can pose confusion. Funds must be used over a minimum of eight weeks and a maximum of twenty four weeks. At Affinity we address any confusion with the borrower immediately to keep the application moving forward, but if it goes to the SBA, the loan forgiveness application will be initially rejected, creating a frustrating back and forth.

At Affinity, our goal is to help our members have their loans forgiven and we work closely with them to help them understand exactly what is needed and what they can expect. There are even times that we need to spend an hour or more on the phone with our members to help them navigate the PPP loan forgiveness process, but not every borrower has an hour to devote to a phone call for this application, and not every lender has sufficient resources to dedicate to it.

Biggest challenges for lending institutions

In the House Committee on Small Business meeting that I attended, it seemed that committee members were concerned that many institutions that provided loans are not yet accepting forgiveness applications. Per the SBA guidelines, businesses have ten months from the end of the coverage period to apply for forgiveness or their loan payments are no longer deferred. If institutions are not accepting forgiveness applications, then small business owners are probably getting anxious. The SBA’s direct portal for forgiveness gives these borrowers another option. 

At Affinity, we have pulled out all the stops. We want to see our small business members survive, so we have helped them do that. In addition to the temporary staff we hired, we were able to create a PPP loan hotline to help members through this process. Lenders who have created a successful internal process and who are communicating with their borrowers should not be forced to opt in to the SBA direct forgiveness portal as it may interfere with their existing process.  Additionally the focus should be on the larger and riskier loans and thus I support revising the streamlined forgiveness process by raising the dollar limit to $350,000. 

For many small businesses, PPP loans have served as a lifeline to protect livelihoods, employees and families. What those business owners need now is an easy process to receive loan forgiveness, so they can move on from the damage caused by the pandemic and get back to the important work they do every day.

About Author:
Leslie Honeker Payne With more than 30 years of commercial lending experience and a significant focus on community small business lending, Leslie is currently the assistant vice president and team leader of commercial lending at Affinity Federal Credit Union. Leslie has extensive experience in helping businesses reach their financial goals, and her passion for supporting member needs has led her to manage Affinity’s current SBA PPP initiative. Prior to joining Affinity in 2015, Leslie held commercial loan officer positions at Valley Bank, Fulton Bank and First Morris Bank and Trust.

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