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Banks Are Opting Out Of the Government’s PPP Loan Forgiveness Process

Banks Are Opting Out Of the Government’s PPP Loan Forgiveness Process

PPP

Banks Are Opting Out Of the Government's PPP Loan Forgiveness Process. Image: MMG

The small print on the so-called “forgivable” Paycheck Protection Program loans is coming back to haunt small business owners, who were encouraged early in the pandemic to apply for billions of dollars in government relief money to protect themselves from annihilation as the economy shut down.

At least three major banks — Bank of America, JPMorgan Chase, and PNC — have decided to opt out of a new process for getting PPP loans forgiven directly by the Small Business Administration, The Intercept reported. That leaves their small business customers with no other recourse if the banks drag out the process or refuse to forgive loans.

Many banks accepted applications only from existing customers. The PPP application process was run through commercial banks, primarily benefiting those companies with existing relationships. Many Black-owned businesses failed to apply, thinking the PPP program was not real, just hype.

President Joe Biden’s covid-19 recovery stimulus bill included a new $284.45 billion round of PPP funding aimed at reaching Black-owned businesses — the hardest hit by the pandemic.

Congress created the forgivable PPP loans to help business owners retain workers on the payroll that might otherwise have lost their jobs in the early days of the pandemic. Other qualified expenses were covered to help businesses get through the shutdowns. The loans were made with the promise that they would be forgiven and essentially turned into grants if the borrowers complied.

But many small business owners have been unable to get their loans forgiven by the banks that issued them. Banks were incentivized to issue PPP loans, earning $10 billion in fees. But there’s no incentive to forgive the loans and they’re dragging their feet, The Intercept reported. Less than half of the total PPP loans that were issued have been forgiven so far.

In response, the Small Business Administration, which ran the PPP program, announced in late July that it would let small business owners with PPP loans of $150,000 or less bypass banks and go direct to the government agency’s PPP Loan Forgiveness Portal for forgiveness.

“But there was fine print in the SBA’s recent announcement that many may have missed: Banks actually have to opt into the direct process for small business owners to access it. And at least three major ones have refused,” The Intercept reported.

Lenders representing just half of all outstanding PPP loan forgiveness applications have opted in, according to the SBA. As of the end of May, JPMorgan Chase is the No. 1 PPP lender, followed by Bank of America at No. 2 and PNC at No. 11.

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More than half of small businesses — 52 percent – have not asked for PPP loan forgiveness as of August 15, 2021, according to the Small Business Administration (SBA) weekly summary. And 46 percent of all PPP loans have been fully or partially forgiven for a total of $471.137 billion.

“The data shows there is a very high forgiveness rate when small businesses apply,” Small Business Trends reported.

Some banks, which approved the loans in the first place, have been contacting small business owners recently and telling them that they shouldn’t have received the amount they received and have to pay some of it back.

“Small businesses must meet the standards to qualify for forgiveness whether they go through their lender or directly through the SBA,” a Chase spokesperson tole The Intercept.

In its rush to get the relief money out fast, the federal government waived much of the vetting lenders traditionally do on business loans, New York Times reported. An estimated 1.8 million of the program’s 11.8 million loans — more than 15 percent — totaling $76 billion had at least one indication of potential fraud, researchers reported in a new academic working paper released last week.