Dear Chairman Rubio, Chairwoman Velázquez, and Ranking Members Cardin and Chabot:
The Consumer Bankers Association and the Bank Policy Institute write to express our concerns regarding the Paycheck Protection Program (PPP) loan forgiveness process and the significant burden it will place on the smallest of businesses who sought relief during these uncertain times. The PPP, established by Congress in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, has provided millions of small businesses the economic relief they need to meet the challenges posed by the COVID-19 crisis. However, the expedited process by which the program was implemented has resulted in considerable gaps in policy, particularly regarding the forgiveness aspect of PPP, and has proven to be unnecessarily burdensome for many of the businesses it sought to help.
In order to help our nation’s smallest small businesses, we urge Congress to quickly pass legislation that would forgive PPP loans of less than $150,000. This threshold would account for 85 percent of total PPP recipients, but less than 26 percent of PPP loan dollars. Lenders would continue to meet the PPP requirements provided by SBA for these loans, but the loan forgiveness process would be faster for these small businesses. Further, these hard-hit businesses could save more than $7 billion dollars and hours of paperwork. These small businesses and their employees are the backbone of our nation’s economy and communities. Their time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork.
An independent analysis by AQN Strategies (AQN), attached as Addendum A, has shown an estimated benefit of issuing auto-forgiveness for various loan size thresholds.1 AQN anticipates the combined resource requirements of operators’ time and/or third-party expenses to represent an effective cost of $2,000-$4,000 for each business that applies for forgiveness, requiring 20-100 hours of focused time from key leaders of these businesses. With an average loan size of less than $19,000 for the smallest 60% of loans, this estimate would represent 10-20% of the loan amount itself, which is otherwise intended to support payroll, rent, and other obligations necessary to keep businesses alive and ready to restart.
AQN used key assumptions into costs and revenues incurred by business, lenders, and government. Business costs were estimated to include interest paid to banks across the life of the loan and the cost of resources needed to apply for the loan and forgiveness of the loan. Bank costs include underwriting and processing applications for loans and forgiveness, servicing the loans, and paying the government for the cost of PPPLF funds. Bank revenues include origination fees paid to them by the government and interest collected throughout the life of the loan. The cost to the government was estimated as the incremental loan balances to be forgiven if auto-forgiveness was in place. We anticipate an inherently high forgiveness rate (90%+) as a baseline and recognize key sensitivities to this assumption.
Leveraging these assumptions, AQN set out to estimate the incremental cost that would stem from auto-forgiveness. For example, if it is assumed that there would be inherent forgiveness rates of 90%, the analysis sought to understand the difference in cost between the government forgiving the remaining 10% of loans versus the costs to both businesses and banks to apply for all 100% of loans and associated costs for those not forgiven. AQN’s analysis suggests that the cost to businesses and lenders would be lower than the cost for the government to auto-forgive loans under $100,000. If policy changed that forgiveness is more likely, such as by extending the usage window (as currently proposed), then auto-forgiveness may be palatable for loans up to $150,000.
With all this considered, the undersigned trade associations recommend Congress provide automatic forgiveness to small businesses that received loans with amounts less than $150,000. By doing so, our nation’s small business owners can focus their time, energy, and resources back into their business and not on paperwork.
We look forward to working with members of the Committees and Congress on this issue. Sincerely,
Consumer Bankers Association
Bank Policy Institute
1 Ben Sabloff, Jason Ford, Gaby Garcia, “Is It Easier to Ask for Forgiveness Than Permission? Not for PPP Loans Under $150K” AQN Strategies, June 1, 2020, https://www.aqnstrategies.com/aqncentral/forgive-small-ppp