By Amy Yee and Andre Tartar | Bloomberg
Nearly 350,000 loans issued to small businesses in 2020 during the Covid-19 pandemic were unforgiven, according to a Bloomberg News analysis of Paycheck Protection Program data, and most of them are less than $25,000.
This lingering debt – about $28 billion, according to the analysis – is creating a burden for smaller businesses, many of which are run by minority entrepreneurs, according to advocacy groups, community leaders and business owners. . Many are struggling with the process of applying for forgiveness under the loans program that has handed out more than $800 billion over two years.
Unlike traditional loans, those granted under the pandemic relief program can be canceled if certain conditions are met. The proceeds had to be spent on payroll and other qualifying expenses within a specified time, eg. But some borrowers who say they meet the criteria struggle with technical issues, onerous documentation requirements and confusing websites.
Angela Thompson, owner and general manager of a Jacksonville, Florida-based home improvement company, first filed for forgiveness on her $172,000 PPP loan in December 2020. Over a year and over 100 calls to loan providers later, she has received several notices saying she is on the hook to start paying off the debt.
Initially, she asked for forgiveness through Kabbage, the online lender who gave her the loan. But when American Express Co. bought Kabbage in August 2020, it didn’t acquire its pre-existing loan portfolio. Instead, his loan lived with another provider, K Servicing. Thompson did not receive a link to her PPP pardon website until August 2021. She immediately submitted her application. But in December, she received a bill for $22,000 to pay off her monthly loan; then another in January and another in February.
K Servicing customer service told him to ignore the notices, but the Small Business Administration, the federal agency that administers the program, still listed his loan as unforgiven in its latest data update on Jan. 3. “I have great credit. How do you tell me to ignore an invoice? Thompson said in an interview. “It stresses me out.”
K Servicing told Bloomberg News that the majority of its PPP loans have been forgiven and it continues to work with clients who have outstanding loans.
Lawyers led by the Center for Responsible Lending on Thursday called on the SBA, the US Treasury and Congress to take action to help small business owners with outstanding PPP loans, including automatically canceling those for $25,000 and less.
The National Urban League, National Association for Latino Community Asset Builders, UnidosUS, National Coalition for Asian Pacific American Community Development, and Hope Policy Institute are among more than 50 advocacy groups, minority business associations, and lenders focused on minorities who signed the letter.
They say small business owners, some of whom are sole proprietors, including drivers, cleaners and landscapers, have a harder time documenting payroll, expenses and income. This is especially true if businesses are cash-based, lack professional accountants, or face technology and language barriers.
“We need to come to the aid of the most vulnerable,” said Aracely Panameño, former director of Latin American affairs at the Center for Responsible Lending.
Advocates are also calling on the SBA to rescind a rule denying forgiveness to borrowers who have made honest mistakes and eliminate “gotcha” denials of loan forgiveness due to sudden rule changes.
“Borrowers are desperate. Small businesses thought they were doing everything right. Now they’re being told their loans aren’t canceled,” said Tracy Ward, director of the Self-Help Ventures Fund, a North Carolina-based nonprofit lender.
A small business owner said Bank of America Corp. refused forgiveness of a $15,000 loan because she did not have a specific payroll document. She spent nine months pleading her case with the bank and local elected officials to no avail. His first reimbursement bill for $2,000 came in October.
“PPP applicants were responsible for determining their own eligibility under the program’s complex rules,” the letter from the advocacy groups read. “While eligibility for SBA loan programs is typically determined by the lender and the SBA, for PPPs that burden has shifted to the small business borrower.”
The SBA declined to comment on future policy decisions. The agency announced last month that borrowers could request an SBA review of partially canceled PPP loans.
While the vast majority of the 5.14 million PPP loans approved in 2020 were canceled – and many borrowers had a smooth process – at the start of January, there were 349,372 uncancelled loans and another 380,000 that were partially canceled. cancelled.
The SBA has approved more than 11.4 million PPP loans since 2020; the pardon process is still ongoing for some of those issued last year.
Borrowers required to repay all or part of their loans could take on more debt, have their credit damaged or possibly be forced into bankruptcy. And it’s the smallest businesses with the fewest resources that are most at risk, said Dafina Williams, senior vice president of Opportunity Finance Network, a national association of community development finance institutions.
“They can’t afford to go into debt a penny more. It could be devastating,” she said.
Applying for a pardon can be so complicated that some small businesses simply give up.
“There is a gap in the ability to complete the process,” said Ruben Alonso, CEO of AltCap, a community lender in Kansas City, Missouri. “It takes a long time for working entrepreneurs to keep businesses open.”
Many of the problems faced by business owners seeking forgiveness also made it difficult for them to obtain loans during the first phase of the program. In the first tranche of PPP loans, lenders distributed an inordinate number to white neighborhoods. Minority-owned businesses tend to be smaller, and smaller businesses more often don’t have existing relationships with banks and traditional accountants to help with paperwork. And most don’t have formal employees.
Even for those who get approval, getting forgiveness can be difficult, said Dennis Huang, executive director of the Asian Business Association. The Los Angeles-based nonprofit secured a PPP loan of around $38,000 in February 2021.
Huang, who holds an MBA, said it was difficult to find basic forgiveness information from his lenders Northeast Bank and ACAP Fund, now called Newity. Application forms were buried deep in websites, timelines were unclear, and customer service was poor. “ACAP had a revolving telephone tree. I couldn’t find a living person to help us,” Huang said. Finally, in November 2021, the SBA listed the loan as canceled.
The process was “awful”, Huang said. “I don’t know how small businesses do it.”