Nearly 350,000 loans made to small businesses in 2020 during the COVID-19 pandemic went unissued, according to a Bloomberg News analysis of Paycheck Protection Program data, and most of them are less than $25,000 in value -Dollar.
That persistent debt — about $28 billion, the analysis shows — is putting a strain on the smallest businesses, including many run by minority entrepreneurs, say advocacy groups, community leaders and business owners. Many are struggling with the process of asking for forgiveness under the loan program, which distributed more than $800 billion over two years.
Angela Thompson, owner and CEO of a real estate renovation company based in Jacksonville, Fla., first applied for forgiveness on her $172,000 PPP loan in December 2020. Over a year and more than 100 calls to lenders later, she received multiple notifications that she was on the hook to pay off the debt.
First, she sought forgiveness through Kabbage, the online lender who granted her the loan. But when American Express Co. bought Kabbage in August 2020, it didn’t acquire its pre-existing loan portfolio.
Instead, her loan lived with another provider, K Servicing. Thompson only received a link to her PPP forgiveness website in August 2021. She immediately submitted her application. But in December, she got a $22,000 bill for her monthly loan repayments; and then another in January and another in February.
K Servicing’s customer service told her to ignore the notices, but the Small Business Administration, the federal agency that administers the program, still listed her loan as unallocated in its last data update on Jan. 3, do you want to tell me, I should ignore a bill?” Thompson said in an interview. “That stressed me out.”
K Servicing told Bloomberg News that the majority of its PPP loans have been forgiven and that it continues to serve customers who have outstanding loans.
Advocates led by the Center for Responsible Lending on Thursday called on the SBA, the US Treasury Department and Congress to take steps to help small business owners with outstanding PPP loans, including automatically forgiving $25,000 in loans and fewer.
The National Urban League, the National Association for Latino Community Asset Builders and the National Coalition for Asian Pacific American Community Development are among the more than 50 advocacy groups, minority business associations and minority-aligned lenders who signed the letter.
They say the smallest business owners, some of them sole traders including drivers, cleaners and landscapers, have greater challenges documenting payslips, expenses and income. This is especially true when businesses are cash-based, don’t have professional accountants, or face technology and language barriers.
“We have to come through for the most vulnerable,” said Aracely Panameño, former director of Latino affairs at the Center for Responsible Lending.
Proponents are also asking the SBA to repeal a rule that denies forgiveness to borrowers who have made good faith mistakes and to eliminate “caught” denials of credit due to sudden rule changes.
“Borrowers are desperate. Small businesses thought they were doing everything right. Now they’re being told their loans will not be forgiven,” said Tracy Ward, director of the Self-Help Ventures Fund, a nonprofit lender based in North Carolina.
One small business owner said Bank of America Corp. denied forgiveness on a $15,000 loan because she lacked a specific salary document. She spent nine months bringing her case before the bank and locally elected officials to no avail. Her first $2,000 repayment bill came in October.
“PPP applicants were responsible for determining their own eligibility under the complex program rules,” read the letter from stakeholders. “While eligibility for SBA loan programs is typically determined by the lender and the SBA, for PPP that burden has been shifted to the small business borrower.”
The SBA declined to comment on future policy decisions. The agency announced last month that borrowers could request an SBA review of partially forgiven PPP loans.
While the vast majority of the 5.14 million PPP loans approved in 2020 have been forgiven – and many borrowers have had a smooth process – there were 349,372 outstanding loans and another 380,000 that were partially forgiven as of early January.
The SBA has approved more than 11.4 million PPP loans since 2020; the forgiveness process is still ongoing for some of those exhibited last year.
Many of the problems that plagued business owners asking for forgiveness also made it difficult for them to obtain credit in the earliest stages of the program. In the first tranche of the PPP loans, lenders distributed an outsized number to white neighborhoods. Minority-owned businesses tend to be smaller, and small businesses more often lack established relationships with mainstream banks and accountants to help with paperwork. And most have no formal employees.
Even for those who receive approval, forgiveness can be difficult to obtain, said Dennis Huang, executive director of the Asian Business Association. The Los Angeles-based nonprofit received an approximately $38,000 PPP loan in February 2021.
Huang, who has an MBA, said it was difficult to find basic information on forgiveness from his lenders Northeast Bank and ACAP Fund, now called Newity. Application forms were buried deep in websites, deadlines were unclear, and customer service was shoddy. “ACAP had a phone tree that went in circles. I couldn’t get a living person to help us,” Huang said. Finally, in November 2021, the SBA listed the loan as forgiven.
The process is “terrible,” Huang said. “I don’t know how small companies do it.”