The federal Paycheck Protection Program has run out of funding for all but a small subset of borrowers and will officially come to an end May 31, after operating on-and-off for more than a year as a critical lifeline for businesses struggling to stay afloat during the COVID-19 pandemic.
The program was created in the first federal COVID-19 rescue package and allowed business owners to apply for forgivable loans from private lenders – backed by the U.S. Small Business Administration – to help meet payroll obligations. With the program winding down, attention is now turning to the “forgivable” part, which comes with its own process that business owners need to navigate.
“Now we’re on a phone campaign, actually contacting member borrowers by phone just as a reminder that they do need to go through a formal forgiveness process,” said Marc Timm, chief lending officer at Columbia Credit Union in Vancouver.
Vancouver-based IQ Credit Union issued more than 700 PPP loans, according to senior vice president of marketing Danette Chapelle, and is now shifting its focus to the forgiveness process. Many of the small business recipients don’t have corporate accountants, she said, so they’ve needed close guidance to navigate an unfamiliar challenge.
How the program works
The program opened for loan applications in early April 2020, only to exhaust its entire $349 billion funding in less than two weeks. Congress kicked in another $320 billion, allowing applications to resume later that month.
The application period closed in August, but the program reopened in January after Congress added another $284 billion in December. At that point, previous loan recipients were allowed to go back and apply for a “second draw” PPP loan. (The Columbian was among local businesses that received at least one PPP loan.)
Both rounds of loans are forgivable if businesses have met certain criteria including maintaining their staffing levels, spending at least 60 percent of the loan dollars on payroll costs and spending the remainder on other eligible expenses.
Borrowers are able to take up to 24 weeks to spend the money and are eligible to apply for forgiveness once it’s been spent. Loan payments are deferred for 10 months after the funds are used, according to the SBA. If the loan isn’t forgiven by then, the payments start coming due.
For early recipients who spent their first loans quickly, that deadline is either already here or fast approaching, and its arrival is keeping local banks and loan recipients busy navigating the forgiveness application process.
Timm said he had several clients who opted to delay their forgiveness applications for several months, in some cases because they were surprised at the amount of documentation that needed to be gathered to prove that the funds were spent correctly – especially for smaller businesses whose owners might not have been as familiar with loans in general.
“For the layperson, it can be a little confusing,” he said.
Timm said Columbia has begun reaching out to clients to try to initiate the forgiveness process. There might be a mistaken perception in some cases that the forgiveness process is automatic, he said, in part because at one point last summer it was reported that federal lawmakers were considering making forgiveness automatic for smaller loans. But Congress ultimately never voted to do so.
The second draw PPP recipients appear to be a little more tuned-in to the process, he said, likely because they already went through it for round one.
There’s no single story, however – Timm said some loan recipient clients have been frustrated by long wait times for forgiveness approval, while others applied quickly and received forgiveness within a week or two.
In a few cases, clients have found themselves under audit while the SBA reviews their documentation. The process is all handled through an online SBA portal, he said, which has at times made it difficult to communicate directly with the SBA about individual cases.
“I’ve got a couple that have been under audit since September,” he said.
Local borrowers described mixed results in their forgiveness attempts.
Beaches Restaurant applied for forgiveness on the first possible day, owner Mark Matthias said, and the process turned out to be relatively painless, which he credited to an online portal system used by his loan source, Riverview Community Bank. Gathering, scanning and uploading the requisite documents took some time, he said, but the process was clear.
“The deadlines are out quite a ways. You get a lot of time to go through the forgiveness process, but I think most businesses do it right away just so you don’t have it hanging over your head,” he said.
The application process was much easier for the second draw loan because all the kinks had been ironed out, Matthias added, so he feels less pressure to rush – he said he’ll likely apply for forgiveness in August or September.
Trap Door Brewing owner Bryan Shull also counted himself among the business owners who had a surprisingly easy time with the forgiveness process for round one. He front-loaded his expenses last summer in order to spend the loan dollars quickly, he said, but then waited a while to seek forgiveness.
“I was dreading the forgiveness process because of what I went through for the yes” to get the loan approved, he said.
The early round one application process was convoluted, with requirements that seemed to shift constantly as the SBA rushed to nail down the specifics of the new program. But Shull said when he sat down to submit his forgiveness application in October, it took only half an hour.
Leah Pickering, owner of Kazoodles Toys in east Vancouver, has been one of the less lucky ones. She had trouble during the initial application process because she had only recently become the owner of the toy store, taking over from co-founders Bob and Mary Sisson shortly before the pandemic.
“I purchased the business Dec. 31, 2019, so when this all came up I had to use payroll numbers for a business I didn’t technically own (in 2019), so that had a lot of banks telling me no,” she said.
She ended up turning to a California-based lender rather than a local bank. The loan did work out, but she said she’s still waiting for the green light from her lender to apply for forgiveness – and she didn’t feel comfortable applying for a second PPP loan in the meantime.
“Even if I have to pay (the loan) back, I’m very thankful because it carried us through,” she said, although she added that she’s still confident that she’s met all the criteria and will eventually be able to complete the forgiveness process.