Small-Business Loans Will Be Forgiven, but Don’t Ask How

More than 5.2 million business owners borrowed a total of $525 billion through the paycheck program, which used banks and other lenders as conduits to issue the loans. From April to August, small businesses were encouraged to borrow cash to cover eight weeks of payroll and a handful of other expenses. Once the money is spent, borrowers must apply through their bank to have the government pay off their loan.

But business owners looking to start the loan forgiveness process have found lenders mostly unwilling to work on those applications until there is clarity from Congress, especially because of the cost and complexity of handling fairly small loans. Loan forgiveness proposals have been introduced in both the House and Senate with bipartisan backing — Treasury Secretary Steven Mnuchin said he was a supporter — and were likely to be included if Congress passed an economic relief bill, but the fate of such legislation is uncertain, with the presidential election just weeks away.

Ed Sterling, the president of Flagler Bank in West Palm Beach, Fla., said lenders had been “waiting on the edge of our seats” for legislative action. The process for reviewing a loan-forgiveness application will take his bank about three times as long as it took to originate the loan, he said.

The Small Business Administration has been slow to act on loan forgiveness applications that lenders have sent in. The agency began accepting the forms on Aug. 10. By late September, it had received 96,000, but had not yet approved or denied a single application, its chief of staff, William Manger, said at a House subcommittee hearing. By law, the agency has 90 days to respond after it receives an application. A representative of the agency said it had sent its first approvals and loan payments to banks on Oct 2.

Lynn Ozer, a banker who specializes in small-business lending, said borrowers she worked with at Fulton Bank in Lancaster, Pa., were “panicked” at the prospect that their forgivable loans would become debts if they made mistakes on their paperwork.

“We can’t help our borrowers if we ourselves don’t understand the guidance,” Ms. Ozer said.

Trapped in the middle are business owners like Léa Kujala, a co-owner of Northwest Treatment, a counseling center near Portland, Ore. Ms. Kujala got a $34,000 loan in April, which helped her and her business partner retain their three employees when their revenue nose-dived.

Now, Ms. Kujala would like to get the loan paid off, but her lender, U.S. Bank, has not yet opened its forgiveness portal to her. Ms. Kujala — who estimates that she has already spent five hours gathering records and preparing her application — is so concerned about the loan’s many rules and potential tripwires that she is keeping all of the money she got in a reserve account, just in case her loan isn’t forgiven. (She drained her business’s savings to make payroll, and will pay that back if her loan is discharged.)