By Rachel Stone

Law360 (June 3, 2020, 8:47 PM EDT) -- Two major banking industry trade groups have urged federal lawmakers to guarantee automatic forgiveness for Paycheck Protection Program loans under $150,000, saying this would cut down on paperwork and save billions for the "nation's smallest small businesses."

When these businesses complete complicated loan forgiveness forms in order to obtain relief, they end up wasting over 70 million hours and more than $7 billion that could be better used to grow the businesses, the Consumer Bankers Association and Bank Policy Institute wrote in a letter Tuesday to the leaders of the Small Business Committees in both the House and Senate.

"Their time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork," CBA chief Richard Hunt said in a statement.

The $150,000 threshold would cover the vast majority of businesses receiving PPP loans, according to the letter, but would impact less than 30% of the funding.

Businesses receiving less than $150,000 often lack dedicated staff to handle the loan forgiveness paperwork, the banking groups said, which means they would need to turn elsewhere — and pay between $2,000 and $4,000.

That cost adds up: When nearly two-thirds of PPP loans are under $50,000, according to the Small Business Association's May 6 PPP report, paying for an outside financial professional could mean shaving a significant amount of funds that could have been used to keep staff members on the payroll, or pay for the business to maintain its space.

Created by the Coronavirus Aid, Relief and Economic Security, or CARES, Act in March, the PPP gives small businesses low-interest loans of up to $10 million each that can be forgiven if the money is used to pay workers and cover certain other costs, like rent and utilities, while large parts of the U.S. economy are shuttered because of the pandemic.

As the pandemic has raged on longer than previously anticipated, federal lawmakers proposed new measures aimed to grant the program additional adaptability.

Additionally, a nearly unanimous House last week approved a bipartisan bill that would give more flexibility to small businesses. The Paycheck Protection Program Flexibility Act would reduce a requirement that at least 75% of funds go to payroll and allow businesses more time to use the loans and rehire workers. The Senate approved the measure late Wednesday, sending it to President Donald Trump, who is expected to sign it.

With Senate approval of programs that would allow forgiveness to be more easily attainable, then "auto-forgiveness may be palatable for loans up to $150,000," the banking groups said, citing an analysis by the financial services consulting firm AQN Strategies.

"In a world where you want small businesses to be focused on adapting their business models, being resilient to the crisis, and looking forward to the future, you're asking a lot of the smaller ones — who are the most vulnerable — to spend a lot of their time applying for forgiveness, and for what benefit?" Ben Sabloff of AQN told Law360 on Wednesday.

"I think it's a great investment for the government to make to auto-forgive this. You'll have some fraud that probably slips through, and you'll have a few bad actors in the process, but it saves the good ones in the process," Sabloff said.

The Bank Policy Institute did not respond to a request for comment Wednesday.

--Additional reporting by Jon Hill and Andrew Kragie. Editing by Amy Rowe.

Update: This article has been updated with Senate passage of the PPP Flexibility Act.

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