Loan forgiveness ramps up for 2020 program
By Jason Starr
A flood of loan forgiveness applications from Vermont businesses that received Paycheck Protection loans last year have come into the U.S. Small Business Administration offices this month, just as another round of funds are ready for lending.
The original Paycheck Protection Program (PPP) was launched in April via the federal CARES Act to help businesses that had to close or reduce operations because of the coronavirus pandemic keep paying employees. In five months, it pumped $1.2 billion into the Vermont economy, according to Small Business Administration Vermont District Director Darcy Carter. Roughly 12,400 Vermont businesses received loans.
“It was definitely a very quick way to get a lot of money into the economy,” Carter said.
The loans are forgiven — becoming essentially grants — if the money was used exclusively to pay employees and for a few other qualifying expenses, including rent or mortgage interest, and utility costs. In late December, Congress passed a new stimulus bill, releasing $284 billion nationally for another round of PPP loans. Applications for the new round opened Monday.
The new bill also simplified loan forgiveness procedures for the first round of loans, creating a single page forgiveness application (SBA Form 3508 available at www.sba.gov). While some businesses had already applied for forgiveness, the simplified rules led to a surge in new applications after the new year, Carter said.
“A lot of people were waiting because there was a lot of anticipation about the rules being simplified, and in this new bill they have been simplified, especially for loans under $150,000,” Carter said. “Everybody was kind of holding out that Congress was going to pass a bill. It took until Dec. 27 for that to happen.”
Businesses have until 10 months after the six months that the loan covered to apply for forgiveness. The money must be completely spent. Carter expects nearly all of the loans to be forgiven.
There are 26 banks and credit unions that are qualified to handle PPP loans for the SBA. The loan application is streamlined compared to a standard commercial loan, which typically involves credit checks, collateral, financial statements, real estate appraisals and financial projections. The main criteria for a PPP loan is that the business owner certify that the business has been negatively impacted by the pandemic and that the money is used only for payroll and other qualifying expenses.
“The lenders are really familiar with it now and they move very quickly on them,” Carter said. “Usually a commercial loan isn’t very fast … This is just a quick way to get money for your business.”
The new PPP program expands qualifying expenses to include operational expenses, property damage costs, supplier costs and worker protection costs. It also expands eligibility to non-profits.
“The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most,” U.S. SBA Administrator Jovita Carranza said in a press release. “(The new program) adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”