Thousands of Connecticut small businesses borrowed money to pay employees during the pandemic using a federal program that promised to forgive the debt. Now those businesses are watching a shifting federal landscape, waiting to see those loans forgiven.
For many small businesses, the Paycheck Protection Program provided funds to keep their employees paid through the pandemic. The idea was, if employers used the money to pay their workers, keeping them from filing for unemployment, the federal government would forgive the debt.
Under federal guidelines, the loans can be forgiven if at least 60% of them have been used for payroll but the money can also be used to help pay rent, utilities and interest on mortgages.
So far, the process for forgiving the loans has been a moving target, the required paperwork has shifted, and borrowers are watching a deadlocked Congress, hoping for an influx of cash to clear away more loans.
The U.S. Small Business Administration began approving forgiveness applications and issuing payments to lenders on Oct. 2. The agency plans to continue processing the applications in a “expeditious manner,” according to a press release.
For restaurants, hit especially hard by the early lockdown and subsequent caps on their customer capacity, the program was “a life saver,” Scott Dolch, executive director of the Connecticut Restaurant Association, said. Now the group is working with the SBA to educate restaurant owners on the process of filing for forgiveness.
“The number one concern is making sure these restaurants can be fully forgiven and making sure the process isn’t cumbersome, making sure they don’t have to spend outside dollars to do it right,” he said.
Last week the SBA changed the forgiveness application process for loans of $50,000 or less. The new form will help ease the process and fast-track the forgiveness of loans for the smallest businesses. But some lenders say that threshold still leaves many small businesses navigating the same time-consuming and expensive process as big corporations.
Bruce Adams, president and CEO of the Credit Union League of Connecticut, called the $50,000 ceiling “unrealistic at best.”
“No business borrowing less than $150,000 should have to complete the same application as those borrowing $1.5 million or even $500,000,” he said. “America’s small businesses are the lifeblood of our economy and, along with those businesses, Connecticut credit unions relied on the promise of loan forgiveness to support our communities and the state’s economy in the hour of its greatest need.”
Many are hoping Congress will act to quickly forgive the loans of every business that borrowed $150,000 or less. In a Wednesday letter to Senate Majority Leader Mitch McConnell, Jim Nussle, president of the Credit Union National Association, urged passage of legislation that would speed up the process for most PPP loans.
“PPP loans of $150,000 and under account for 87% of total PPP recipients, but less than 28% of PPP loan dollars. Expediting the loan forgiveness process for many of these hard-hit businesses would save more than $7 billion and hours of paperwork,” he wrote.
Tom Mongellow, president and CEO of the Connecticut Bankers Association, said many people are waiting to see whether Congress will pass what amounts to a bipartisan proposal.
“I think loan customers are out there waiting to see what Congress does,” he said. “But I think it’s fantastic that SBA and Treasury have stepped up to at least do the streamlined process for $50,000 or less.”
In the meantime, many Connecticut businesses are working with their lenders to make sure the appropriate documentation is submitted to the federal government so that they are eligible to have their loans forgiven.
Chris DiPentima, president and CEO of the Connecticut Business and Industry Association, said many companies are waiting to hear back.
“I’ll say it’s a source of concern, maybe some anxiety in that they just want some certainty. Is my loan being forgiven? Am I planning my budget that way or, if it’s not forgiven, then obviously I’ve got to look to reduce costs,” he said.
Although at 1%, PPP loans have low interest rates, having to pay the loan back plus interest could be a big blow for a small business—especially for those in sectors hit hard by the pandemic. DiPentima said leisure and hospitality and aerospace manufacturing were especially vulnerable. The average manufacturer in Connecticut employs about 26 people, he said.
In addition to fast-tracking loan forgiveness, most people involved continue to hope Congress will pass another round of pandemic relief funds. The restaurant association’s Dolch said businesses have long since used up the money from the PPP lending. Restaurants continue to face challenges, he said.
“That money has run dry. It’s been gone for a couple weeks now on average, probably longer for others. Now with winter on the horizon, it’s a scary time. They don’t have PPP funding to carry them through,” he said.