Treasury, SBA fall short of employers' goals in new small business loan rules

Zachary Warmbrodt

The Trump administration released long-awaited rules on how government-backed small business loans can be forgiven, but they fall far short of what employers and lawmakers are demanding for the popular program.

The Small Business Administration and Treasury Department quietly published the rules late Friday after weeks of public outcry for further guidance on the so-called Paycheck Protection Program, which offers businesses low-interest loans that can be forgiven if borrowers maintain their payrolls amid the pandemic.

But the forgiveness requirements align with previous SBA and Treasury guidelines and don't offer the kind of changes that a growing chorus of businesses are seeking to make it easier for them to avoid being saddled with the debt.

The employers want more time to the use the loans while still qualifying for forgiveness — they have only eight weeks now — and more freedom to spend the money as they choose beyond payroll costs. The new rules address neither concern.

Still, the process remains uncertain with Congress weighing a major overhaul of the program.

Lawmakers are considering legislation that would give employers up to 24 weeks to spend the money and the ability to use more of it on non-payroll expenses than the 25 percent allowed today. The Senate adjourned on Thursday for the Memorial Day recess without taking action on the program. The House will vote on legislation next week.

The administration released two new rules specifying what qualifies as payroll expenses and detailing limits on the amount of loan forgiveness available for owner-employees.

One added details on the requirements for loan forgiveness. The other outlined lenders' responsibilities in the forgiveness process and SBA's procedures for reviewing loans to determine borrower eligibility.

The SBA said banks must issue decisions on borrowers' loan forgiveness applications no later than 60 days after receiving them. The agency will then send payment for forgiven loans to the lender within 90 days.

The rules also explain how the SBA will review some loans to determine whether borrowers should have received the aid.

The agency said it may review any loan as needed but will judge them based on "the rules and guidance available at the time of the borrower’s PPP loan application" — a potentially important distinction because the program's rules have shifted regularly since its hurried April 3 launch. The SBA said it intends to release a separate rule on how businesses can appeal an SBA decision that they were ineligible for a loan.

The SBA said lenders would lose processing fees if they issued loans the agency later deemed ineligible. The fees can be being clawed back, the agency said.