Feds Unveil Simplified Application For PPP Loan Forgiveness

By Jon Hill
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.

Sign up for our Banking newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!

Law360 (June 17, 2020, 7:07 PM EDT) -- The Small Business Administration and U.S. Department of the Treasury on Wednesday released a simplified version of the application that small businesses must file to receive forgiveness on their Paycheck Protection Program loans, a move that comes amid calls to lighten the paperwork burden facing borrowers.

The agencies' new "EZ" loan forgiveness application clocks in at just three pages and can be used by self-employed borrowers and businesses that didn't significantly cut worker wages or salaries after taking out loans from the $660 billion coronavirus relief program.

Businesses using the simplified form would also need to have either kept their employee head counts steady or taken a lasting hit to their activity levels because of public health restrictions tied to the COVID-19 pandemic, according to the agencies.

"These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan," the SBA and Treasury said in a statement Wednesday.

The agencies also published an updated version of their existing forgiveness application to reflect program changes that were enacted earlier this month to provide borrowers with more flexibility on how and when they can spend their loan money. The revised form has been shortened from 11 pages to five, with instructions now included in a separate document just over six pages long.

Launched in April, the Paycheck Protection Program offers loans of up to $10 million apiece to help small businesses cover payroll and other overhead expenses while they ride out the COVID-19 pandemic. Those loans can ultimately be forgiven if borrowers show they spent their funds according to the guidelines of the program and didn't slash their workforces or wages.

But the loan forgiveness application that the SBA and Treasury initially put out last month faced criticism from small businesses and industry groups, which criticized the paperwork involved as too time-consuming and difficult to complete.

One analysis cited by the Consumer Bankers Association and Bank Policy Institute suggested a small business might spend anywhere from 20 to 100 hours on the application and need to hire an outside expert for help, an investment of time and resources estimated to be worth $2,000 to $4,000 for each applicant, or roughly 10% to 20% of the average smaller PPP loan.  

Such criticisms have led the CBA and BPI to call for Congress to enact automatic forgiveness of PPP loans up to $150,000. That threshold would cover nearly 86% of all PPP loans but just over a quarter of all loan dollars, saving tens of millions of hours in borrower paperwork while costing the government only a minimal additional amount, the groups argued in a letter to lawmakers earlier this month.

At a Wednesday hearing, members of the House Small Business Committee were again urged to consider providing automatic forgiveness for smaller PPP loans, with one Texas community banker testifying that obtaining PPP loan forgiveness remains too troublesome a process for many.

"Even under the simplified applications that were issued this morning, they're still quite onerous as far as documentation is concerned," Eduardo Sosa, senior vice president with Commerce National Bank in Austin, told the committee. "I think a standard automatic forgiveness at $150,000 would be called for."

Ashley Harrington, director of federal advocacy at the Center for Responsible Lending, agreed that further simplification of the forgiveness process is needed, telling lawmakers that the agencies' new simplified application is still "incredibly burdensome for the really small businesses."

"We advocate for streamlined automatic forgiveness under $100,000," Harrington said. "This will disproportionately serve the really small businesses. On average, these are businesses that will likely have 13 or fewer employees, the businesses that we really want to be able to survive and make it through this crisis."

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Ask a question!