Tyler Coates, vice president of sales at a convenience-store food broker and marketing firm in Savannah, Ga., says he has spent some 25 hours on his loan-forgiveness request.
Photo: Jennifer Kohl PhotographySmall businesses that received government-backed loans to ease the pain of the coronavirus pandemic are beginning to turn to a process some say is as complex as getting the money: figuring out whether they have to pay it back.
Some small-business owners have spent dozens of hours wading through the 11-page forgiveness application for Paycheck Protection Program loans. Others are trying to determine how or whether legislation President Trump signed earlier this month changes the math. Some lenders say the government is putting them in a difficult spot by making them responsible for determining forgiveness, and they fear being saddled with unprofitable loans.
“This is not an easy thing to figure out without help,” said Tyler Coates, vice president of sales at Ultimate Sales & Services, a 32-person convenience-store food broker and sales-and-marketing agency based in Savannah, Ga., that received a $420,000 loan. Mr. Coates said he has spent at least 25 hours on an application that estimates it takes 180 minutes to complete. “There are too many question marks and too many errors you can make.”
The Treasury Department and the Small Business Administration have issued 18 “interim final rules” and 48 pieces of guidance in the form of “frequently asked questions” for the program. The government has approved $512 billion in loans to nearly 4.6 million businesses since the program’s April rollout.
The new law lengthens from eight weeks to 24 the time that borrowers have to use PPP funds and qualify for forgiveness. It also lets them spend 40% of the loan on rent and certain other expenses, up from 25%. The changes came in response to requests for more flexibility from small businesses that remain closed, were slow to reopen or spend more on rent and other overhead.
For many small-business owners, the program’s biggest selling point was that the loans would essentially turn into government grants. “Until you see how the forgiveness goes, I don’t think we can call it a success or failure,” said Wesley Veach, chief executive of Bankcda, a lender based in Coeur d’Alene, Idaho, that has funded roughly $23 million in PPP loans for nearly 300 businesses.
Nearly one-third of businesses that received PPP loans will have passed the original eight-week deadline by June 14, according to a recent survey from the National Federation of Independent Business. That means a large share of loan recipients had already spent much of the money before the extension was granted.
Efforts to add flexibility have created new complications. Small-business owners worry that accepting the extension locks them into maintaining staffing at pre-pandemic levels for another four months—even if business doesn’t fully recover, another bout of Covid-19 hurts sales or they simply don’t need as many employees, said Bethany Novis, a partner with the Lancaster, Pa., accounting firm RKL LLP.
The Treasury Department and SBA still need to release a new forgiveness application form reflecting the new law; the agencies previously veered from congressional mandates when setting up the program, the SBA’s inspector general said last month. They haven’t yet said how lenders should submit forgiveness applications to the SBA, what happens if borrowers can’t repay loans in the allotted time and how businesses can appeal if their loan isn’t forgiven.
Treasury and the SBA have tightened oversight requirements. In an interim final rule issued May 22, the SBA instructed applicants for forgiveness to hold on to records for six years and said they could be subject to a review at any time.
Senate Democrats in a letter Friday urged the SBA and Treasury to streamline the forgiveness process, recommending several changes including a simpler application for low-dollar loans.
Some business owners say they are concerned about how the SBA would treat good-faith efforts that fall short. Bonnie Kallenberg, co-owner of three Finders Keepers consignment shops in the Atlanta area, tried to put her $172,000 PPP loan to work as soon as she got it in late April. She hired graduating high-school seniors to replace employees who were afraid to return to work. She paid her husband, another co-owner, for his work setting up an online store.
Ms. Kallenberg now worries she could run afoul of a cap on how much PPP money could go to owner-employees, a provision in the forgiveness application released in May.
“If I have to pay that back, too, on top of everything else that’s happening, forget it,” she said. “We’re done.”
An SBA spokesman said additional guidance would be forthcoming. “The SBA will conduct ongoing due diligence to ensure taxpayer funds are being used appropriately,” he added.
The new law has eased some small-business owners’ concerns about frequent program changes and heightened scrutiny. Polly Bart said she “celebrated all day” when she heard the new legislation had passed because it gives her more time to figure out how to spend a roughly $17,000 PPP loan for Greenbuilders Inc., a remodeling contractor in Sparks, Md., that she owns.
“My business has no debt, and discovering after we have spent the money that it is a loan instead of a grant would kill me,” Ms. Bart said.
The process is particularly daunting for small companies such as Reddell’s Glass & Metal Inc., a provider of commercial storefronts, windows and mirrors in Paris, Texas, that received a roughly $45,000 PPP loan. “If you have a 100-person company, most likely you will have a CFO, a controller, people that deal with this,” said Reddell owner Guy England, who writes payroll checks manually each week for his six full-time employees.
Guy England, whose Paris, Texas-based Reddell’s Glass & Metal has six full-time employees, says he is daunted by the PPP loan-forgiveness application.
Photo: Anthony CortinesMr. England’s banker, H. Gregory Wilson, CEO of Paris-based Lamar National Bank, which has about $260 million in assets, worries that he doesn’t have enough resources to help the bank’s roughly 300 PPP customers with the forgiveness process.
Mr. Wilson said the application seems more complicated than the spreadsheet he used to manage a derivatives portfolio when he worked for a hedge fund. “I have people who want their forgiveness now and have got what looks like the bar exam or a CPA exam.”
With the new, longer time frame for forgiveness, he added, banks will be fielding even more questions from borrowers and “choking on these SBA loans for the rest of the year or even longer.”
Write to Ruth Simon at ruth.simon@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com
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