Small Businesses Benefit From An Easier Path To Relief Loan Forgiveness
Small business owners will not have to repay their federal pandemic relief loans even if they don’t rehire all the workers they laid off, the Trump administration claimed, removing a rule that many borrowers say would leave them stuck with significant debt.
Congress appeared to relax that requirement this month with a new law that has relaxed many terms of Paycheque Protection Program, a $ 660 billion relief effort to help struggling small businesses retain or rehire workers. But the final say on how the law would be interpreted rested with the Treasury Department, which took the lead on most aspects of the relief effort.
On Wednesday, the agency and the Small Business Administration, the program director, released new loan forgiveness forms that have reduced documentation requirements and will give many borrowers an easy way to eliminate debt.
The forms added a “safe harbor” option that allows borrowers to simply state that they were not able to operate “at the same level of business activity” as before the crisis due to the requirements. government or safety guidelines, including social distancing rules.
These borrowers can have their loans canceled entirely if they meet other program rules, including the requirement that they spend at least 60 percent of their aid money on payroll.
The change was absolutely necessary, said Albert J. Campo, an accountant from New Jersey who works with dozens of small business owners. Many of its clients are still subject to state shutdown orders or other restrictions, such as reductions in the number of clients they can serve at one time.
“If you’re at 50% capacity, you can’t bring all of your staff back and pay for everything. You just can’t, ”Campo said. “It gives these borrowers flexibility. “
Details of what qualifies a business as “unable to function” at its previous level remain unclear, said Sonia Desai, director of Weaver, an accounting firm. “It’s really vague,” she said. “I hope there will be some additional advice.”
But this will probably only be a problem for the larger loan recipients. The Treasury Department said it would verify loans over $ 2 million; those with smaller loans will generally be less scrutinized.
Independent business owners and other borrowers with fairly straightforward cases will be able to use a new, shorter “EZ” form request a loan discount. Unlike the old form, it does not require detailed employee information and other documents to prove a claim. (Lenders will still be encouraged to review and verify some of these records.)
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“It’s a step in the right direction,” said Aimee Brierly, spokesperson for Small Business Majority, an advocacy group that called for the loan cancellation process to be streamlined.
More than 4.6 million borrowers have taken $ 513 billion from the Paycheck Protection Program, which aims to help business owners retain or rehire workers by offering forgivable loans to cover two months of their salary costs and other expenses.
After a first wave of borrowing, demand slowed, in part because of applicants’ concerns about the strict and frequently revised rules. Almost $ 130 billion remains available. The program is expected to stop lending at the end of this month.
For some wary borrowers, the recent changes have been a major turnaround. George Evageliou, the founder of Urban crafts, a custom carpentry company in Brooklyn, had left his $ 192,000 loan intact because he feared that he would not be able to spend it according to the rules of the program.
But the changes – particularly an expansion giving borrowers 24 weeks to spend their aid money – gave it time to safely restart operations and recall its laid-off employees. Its staff started returning to work last week.
“We feel pretty good about our decision to sit back and let the law change,” Evageliou said. “We are so grateful for the help this grant will give us.