For the US Small Business Loan Program. USA, Forgiveness may be the hardest part
WASHINGTON: The US government's $ 660 billion small business bailout program. USA It has stumbled upon a lack of documentation, technological glitches, and misdirection of funds toward large corporations. Now, he is reeling toward another obstacle: forgiving those hastily arranged loans.
The second round of the Small Business Administration's Payment Check Protection Program launched on Monday, allowing lenders to issue forgivable government-guaranteed loans to small businesses closed by the new outbreak.
Smooth the sorry The process is critical to the program's success, but a lack of government guidance on related calculations and necessary documentation could attract borrowers and banks alike with billions in unexpected debt.
Probably all PPP borrowers expect their loan to be forgiven, but it's not that simple, said Paul Merski, an executive at the Independent Community Bankers of America.
There are rules and regulations to keep in mind. Therefore, the borrower must have their information and documentation in order.
In principle, the sorry terms are straightforward: borrowers must spend 75% of the loan on payroll costs, such as salaries, tips, leave, severance pay and health insurance, within the first two months. The remaining 25% can be spent on other running costs, such as rent and utilities. Money spent on non-qualifying expenses must be repaid at an annual rate of 1% within two years.
But in reality, it is going to be very tricky calculating partial sorry sums for borrowers who have not met the 75% threshold, said bankers. They point to potential areas of confusion such as when employees must be rehired and what happens if borrowers do not use the funds as promised.
I think it could get a little complex, because with each answer there is another question, said Chris Giamo, head of commercial bank at TD Bank in NY .
That has created uncertainty for borrowers like Josh Mason, founder of Maryland catering company Vittles Catering. He said his bank only gave him instructions on how to maximize his eligibility for sorry on April 24, two days after he received the funds. Those instructions warned clients that the sorry process was "not yet clear."
While a 1% interest rate is very low, the two-year repayment term could see companies that fail to qualify for full sorry landed with chunky monthly payments.
I have read all the guidelines, but could not say exactly how much will be forgiven and not forgiven. I think the ambiguity will create a bit of a mess when all of this comes to an end, Mason said.
Given the many potential calculation variables, banking groups are putting pressure on the SBA and the Treasury Department to issue a standard sorry form for borrowers and to create a calculator so every bank gets the same outcome when using the same data, said executives at three bank groups.
They also seek clarity on what documents are needed to prove borrowers' spending, and how closely banks are expected to analyze that documentation.
Treasury and SBA spokesmen did not respond to requests for comment, but agencies are aware of the problems, said David Pommerehn, the adviser general.
From a banking perspective, we are really acting as intermediaries here. We do not want to include these loans in our books, he said. We see this as a potentially bigger disaster than the financing process.