Small-Business Loans Will be Forgiven, but Don’t Ask How

Small-business owners are flummoxed by how the loan forgiveness phase of the Paycheck Protection Program will work, as lenders await clarity and guidance.


By Stacy Cowley

When the federal government began the Paycheck Protection Program in April, one rule was clear to small-business owners bedeviled by its chaotic and messy start: If most of the loan money was used to pay employees, the debt would be forgiven.

But as the program enters its loan forgiveness phase, those owners — and their lenders — are finding out that although the principle may have been simple, its execution is anything but.

Many lenders have yet to start accepting applications from borrowers to have the loans forgiven. They are waiting to see whether Congress will pass a proposal to automatically forgive debt of less than $150,000, which make up the bulk of loans made under the program.

Square, the mobile payments company, lent Audrey Kramer $5,600 in May to pay the only employee of Sweet Treat Stop, her mobile food truck bakery. She has been ready since July to apply to have the debt wiped away, but Square hasn’t started taking applications. It sent her an email this month saying that it was “waiting to release our forgiveness application until we get more information from Congress.”

Ms. Kramer is grateful for her loan — it helped her keep paying her baker even as her sales plunged — but she’s also eager to be done with it. “We’ve been cautious and we’ve never carried any debt at all on the business,” she said.

On Thursday night, the Small Business Administration, which runs the program, released new forgiveness forms and rules for loans under $50,000. Such loans make up nearly 70 percent of the program. The new rules will make it easier for some borrowers because their loan forgiveness will not be reduced if they cut their employees’ head count or wages after taking the loan, but they will still be required to submit payroll documents and other records.

Lenders said the change was a start, but did not go far enough. The Consumer Bankers Association, an industry trade group, renewed its call for all loans under $150,000 to be automatically discharged.

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