Banks are likely to face a large number of applications for forgiveness from the 113,000 small business owners in Massachusetts who sought out Paycheck Protection Program loans.

As they have since the beginning, rules for the Paycheck Protection Program have continued to change, even after lenders and borrowers had started to prepare for the forgiveness phase.  

While recent changes have increased the likelihood that loans will receive full forgiveness, borrowers face a challenging task in figuring this out.    

“The calculation piece is pretty complicated,” said Brian Bullock, chief commercial lending officer with Lowell-based Enterprise Bank. “I liken it to doing your own tax return.” 

While lenders do not expect an onslaught of PPP forgiveness applications at the outset, they too face uncertainties as they prepare for forgiveness. They were still waiting in early July to hear from the U.S. Small Business Administration about what process they would use to submit forgiveness applications.  

And a new bill in the U.S. Senate could change the process for the majority of borrowers who received smaller loans, easing the burden on lenders. 

10 Months to Apply 

In Massachusetts, 113,000 small business owners, independent contractors and nonprofit organizations received a PPP loan between April and the end of June, according to the SBA. 

With the recent reopening of the program through Aug. 8, lenders could continue to receive new loan requests, though likely not at the pace they saw in April. The forgiveness phase was expected to begin shortly after the original eight–week period covered by the loans, which were expected to be used by June 30. 

With economic shutdowns lasting longer than expected in many states, many small business owners faced the possibility of not qualifying for full forgiveness. Legislation enacted in June gave borrowers the option to have the loan cover a 24-week period instead of eight weeks. It also reduced the amount of the loan proceeds that needed to be spent on payroll costs to 60 percent.  

Safe harbors were also added to the program, helping to protect business owners who had to reduce staff because they could not reopen at full capacity while complying with federal health guidelines. Businesses using the safe harbor have until Dec. 31 to rehire staff. 

Borrowers also now have 10 months from the end of the covered period to apply for forgiveness. 

“All the changes are certainly going in the right direction with more benefits for borrowers,” said Matthew Touma, a managing director and certified public accountant with LGA in Woburn. “There are still a lot of unknowns.” 

Business owners are concerned about the forgiveness calculation, how detailed their records should be, whether their loans would be audited and the timing of when to apply, Touma said. He said he is recommending to his clients not to rush the process. 

“Let it all play out,” Touma said. “There are still more changes to come, which is scary, but there’s more down the road.” 

Tech Solutions Sought 

While the borrower is responsible for the forgiveness calculation, lenders are expected to perform a good-faith review of the loan forgiveness calculations and supporting documents, according to an SBA interim final rule.  

Bullock said Enterprise Bank will return the application to the borrower if a problem is discovered with the calculation. Enterprise Bank, which processed almost 2,000 loans in Massachusetts and another 700 for New Hampshire businesses, has continued to communicate with borrowers about their loans, recommending the document how they spend the funds and seek help from accountants.  

Enterprise Bank will use an automated process from one of its vendors to process forgiveness requests. Jon Skarin, an executive vice president with the Massachusetts Bankers Association, said some banks planned to process forgiveness requests manually. But, he said, many plan to use automated processes. Even smaller banks are looking for technology solutions because they do not have the resources to put toward forgiveness.  

One recent move could simplify the process for both lenders and borrowers.  

In Massachusetts, 84 percent of PPP loans were less than $150,000. Some advocates have called for automatic forgiveness for small loans, citing the challenges owners of the smallest businesses will face in calculating the forgiveness amount without a dedicated accounting employee. Many business owners of color fall into this category, advocates warn. 

Diane McLauglin

While not providing automatic forgiveness, a bill was introduced in the U.S. Senate on July 1 that would simplify the process for loans under $150,000. Borrowers would complete a one-page form, and lenders would be held harmless. 

“That would be a huge burden off the small business owner and the banks that made the loans,” Skarin said. 

The more that receive full forgiveness means fewer loans that banks will need to keep on their books.  

“If all goes well, it could be very, very good for the business owners, very good for them,” Bullock said. “Many of them that have reopened are being challenged.”