WASHINGTON — Tens of thousands of businesses have received funds from the Paycheck Protection Program, including billions in loans processed by credit unions, but many are expecting new challenges around meeting the requirements to have those loans forgiven.
Approximately $600 billion in loans have been made through two funding rounds.
“With thousands of businesses preparing to ask for their eight-week loans to be forgiven, banks and borrowers are just now beginning to realize how complicated the program may turn out to be,” noted the New York Times. “Along with lawmakers, they are pushing the Treasury Department, which is overseeing the loan fund, to make forgiveness requirements easier to meet.”
As CUToday.info has reported, trade groups representing financial institutions have been pressing Treasury and SBA to clarify how the forgiveness of the loans will work.
Earlier this week, the Consumer Bankers Association warned loan forgiveness is the “next shoe to drop” for the program, and as CUToday.info reported here,
the Independent Community Bankers of America said in a letter to Treasury “the rules and guidance on Paycheck Protection Program forgiveness must be clear and reliable so small businesses can make informed decisions in using PPP funds. The current lack of clarity is inhibiting critical spending, and only clear and reliable guidance will allow the program to reach its potential.”
Crux of the Challenge
The PPP loans are designed to be forgiven if the company receiving the funds uses 75% of the money for payroll and to keep headcount even. The remaining funds can go toward other expenses. And that has been come the crux of the challenge.
“That has become more difficult as the economic crisis from the virus drags on and as some businesses face a prolonged period of depressed sales, even once they reopen,” reported the New York Times. “Some businesses are facing smaller payroll expenses because workers have opted to accept more generous unemployment insurance benefits, while only a handful of states have so far allowed businesses to reopen.”
“…The forgiveness phase could be 10 times more complex than the initial program,” one person told the Times.
Meanwhile, the Treasury Department has been hit with a lawsuit over the guidance it has issued. Zumasys, a small technology company in California, and two of its subsidiaries, filed a lawsuit against Treasury Department claiming that the latest guidance was unlawful. The company, which has fewer than 50 employees, received a $521,500 loan that it used for payroll costs and now it fears that it might have to repay that money. According to the complaint, Zumasys had access to other credit sources, but the small business loan was the only option available that would have provided funds that did not need to be repaid, the Times reported.
‘Not in Accordance With the Law’
“This guidance, which essentially imposes new requirements upon PPP borrowers, is not in accordance with the law and damages companies to the extent it jeopardizes their eligibility for PPP loans and calls into question the good faith behind their certifications,” Mona Hanna, a lawyer at Michelman & Robinson, LLP, who is representing Zumasys and its subsidiaries, told the New York Times.
Separately, discussions have begun on Capitol Hill over potentially providing additional funding for the PPP as part of a phase IV stimulus package.