An American Institute of CPAs official told lawmakers Wednesday why the application timeline for the Paycheck Protection Program should be extended as small businesses continue to face obstacles getting loans.
The testimony from Lisa Simpson, vice president of firm services at the AICPA, came during a hearing before the House Small Business Committee on the next steps for the PPP. She testified remotely before the committee, along with representatives from small businesses, banks and other lenders, about the challenges of the PPP. The hearing came only weeks before the PPP is scheduled to expire on March 31, as Democrats in Congress are voting to pass the Biden administration’s new $1.9 trillion coronavirus stimulus package, the American Rescue Plan Act, which includes an additional $7.25 billion in forgivable PPP loans.
The PPP was originally included in the $2.2 trillion CARES Act last March with the goal of providing forgivable loans to small businesses that retain their employees during the economic crisis caused by the COVID-19 pandemic. However, the ever-changing rules and guidance from the Small Business Administration and the Treasury Department, and the difficulty faced by many small businesses in applying for the loans and later for loan forgiveness, meant that many of the loans in the initial round last year went to larger companies that had existing relationships with banks. Congress extended the program last year and added more funding before it expired last summer. Then the Consolidated Appropriations Act that Congress passed last December revived the PPP with the goal of making it more accessible to smaller businesses, especially those that are minority owned. The Biden administration also recently gave the smallest businesses a special period of time to apply exclusively for the loans. But now the program is set to expire on March 31, even as the latest stimulus package will be providing more funding for it.
Some banks have already stopped giving out loans, some officials testified before lawmakers. The AICPA official pointed out how accountants have been helping their small business clients apply for the loans and for loan forgiveness, while the AICPA has been offering free calculators and checklists, as well as hosting town hall meetings, to help with the process.
“Many small organizations don’t have professional finance and accounting staff in-house, so CPAs perform many vital functions including payroll processing, tax filings, paying bills, accounting, financial statement preparation, budgeting, cash flow forecasting and more,” said Simpson. “When the pandemic hit and many businesses were shuttered, small business owners turned to their CPAs for help figuring out how to pay employees, pay the rent, keep the lights on and not lose all of their investment so that when the crisis ended, the business could be in the best position possible to restart.”
Simpson asked lawmakers to extend the PPP application deadline by at least 60 days after March 31, pointing to the challenges facing small businesses and their accountants, including PPP application validation errors and hold codes that are hard to decipher and resolve because they happen in the digital interface between lenders’ and the SBA’s systems. There are at least 65 possible error codes and validation checks in the various systems, many of which may ultimately be incorrect, but they can take two to six weeks to resolve.
“CPAs supporting small businesses through the application process are encountering hundreds of examples of how false error codes tied to validation checks are delaying critical help for small businesses,” said Simpson.
The SBA’s guidance and new forms have also been delayed, though they are supposed to keep step with the recent changes in the maximum loan amount for small business owners who report their income on Form 1040 Schedule C, Simpson pointed out. Lenders’ need to update their systems gives small businesses little time to submit an accurate loan application and resolve any issues they run into with the SBA’s processing system so they can get a PPP loan while trying to operate their businesses.
The recent changes to the maximum PPP loan amount for small business owners are also leading to unequal treatment for many borrowers who had previously applied for and received a PPP loan but can’t retroactively increase the loan amount to benefit from the recent changes, the AICPA noted. The fast-approaching April 15 tax filing and payment deadline is adding even more pressure on accountants and their small business clients, who need relief options right away.
“With an impending March 31, 2021 deadline for the PPP, there is very little time for small borrowers to determine their loan amount eligibility, file an application and resolve any potential error codes and hold codes generated by the current system — all the while operating their business in the midst of local stay-at-home orders, ongoing supply chain issues and customers’ pandemic-related needs,” said Simpson.
Lenders have also been experiencing problems with the system. “In the initial rollout of first- and second-draw PPP in Jan. 2021, lenders found ourselves facing challenging issues with the PPP portal,” testified Hilda Kennedy, president of AmPac Tri-State CDC, a micro-lender in Ontario, California. “There were countless error messages and holds that really brought frustration to our team and our small businesses to whom we could not give answers. At the time, there was no solution for a fix and the communication from SBA was non-existent. With the changes made to PPP on Feb. 24, the SBA and its team addressed many of the error and hold messages. It was as if a magic wand was waved over the portal, and all of a sudden several of our submitted PPP loans were being approved. While this effort really helped, there are still issues with error messages and holds and it is difficult to get a returned call or email. In order for us to have a strong finish to help small businesses receive the PPP they need before March 31, we need to have SBA staff members or a system that is more responsive to addressing the error and hold codes so they can get solved and these businesses can get the help they need.”
Businesses too had trouble getting PPP loans last year. “To say the initial roll-out was ‘problematic,’ may be an understatement,” testified Lisa Bombin of Unico Communications in San Antonio, Texas. “I, like so many other small businesses, had been banking with a well known national bank when the application window opened. And like so many small minority-owned businesses, we were left in the dark. Our financial institution offered no method of submitting an application, rather a landing page to ‘stay tuned’ for more details. We found ourselves seeing the hours slip away and feeling the anxiety rise as our peers and fellow business-owners confirmed their applications had been successfully processed, all while payroll deadlines loomed for our team.”
After multiple attempts to submit an application, her organization contacted the United States Hispanic Chamber of Commerce looking for advice and technical assistance. The USHCC recommended they submit a PPP application through a small community bank as they had been seeing an increasing track record of success from other members across the country. The USHCC was one of the few national organizations providing technical assistance in both English and Spanish to minority-owned businesses and worked with the SBA to have them translate their resources into multiple languages.
“We had no list from which to start, so my husband and I began making calls and scouring the internet through the night, to research local banks across our state to see if they would accept applications from new customers,” said Bombadin. They were eventually able to get a PPP loan through Pioneer Bank, a small Texas regional institution. “Sadly, not all businesses like mine were able to secure a PPP loan and have succumbed to closure,” she added.
She cited a study from the Small Business Majority, an advocacy group, which surveyed small and minority-owned business owners and found that one out of three said the process of applying for the PPP was challenging due to the calculations and paperwork involved, and nearly one in four said that finding a lender willing to accept their application was challenging.
Lenders urged Congress to extend the program. “The second round PPP closes three weeks from today on March 31,” said Alice Frazier, president and CEO of the Bank of Charles Town, in West Virginia. “While demand for the program has slowed, there are still businesses and nonprofits that desperately need these funds. To maximize the value of the program, our shared goal must be to ensure that every potential borrower that needs a loan gets one before the window closes. At this moment, we are very concerned about thousands of applications that have been submitted to SBA but are in limbo because they were put on hold by an automated program for possible waste, fraud or abuse. We also have borrowers who worked with large banks in the first round that have unresolved errors that are now holding up their applications in the second round. These applications require SBA review in order to be cleared of holds and be funded. Rejecting PPP applications made prior to the March 31 deadline, but not approved by the SBA before the program closes, would be unfair to the small business borrowers who desperately need these funds.”
