Dive Brief:

• Borrowers who receive Paycheck Protection Program (PPP) loans must retain their PPP documentation for six years after the loan is forgiven or paid in full, the Small Business Administration (SBA) said in updated guidance it released well after the close of business Friday, along side the Treasury Department, adding that it may review PPP loans "of any size at any time in SBA’s discretion."
• Almost three-quarters of PPP loan recipients found it very or somewhat difficult to understand the loan's terms and conditions, according to a National Federation of Independent Business poll of its members.
• That same sentiment — along with waning interest in the loan program — is prompting some banks to stop accepting new PPP loan applications.

Dive Insight:

With Friday's guidance — the 14th interim final rule the Trump administration has issued since the PPP framework was established in late March — the SBA is signaling a shift from loan application processing to loan forgiveness.

Two thorny issues the guidance did not address are the requirement that businesses use 75% of the loan toward payroll expenses, and that they must use the funds within eight weeks of receiving them. The House is expected to vote this week on legislation that would give businesses 24 weeks to spend the money and relax the 75% rule. The Senate adjourned Thursday for a week-long recess without agreeing on a bill to boost the spending period to 16 weeks.

Friday's guidance did, however, indicate businesses won't have their amount of loan forgiveness reduced when employees refuse to return to work. Some businesses were finding that employees let go during the pandemic were making more in unemployment benefits than they would if they were given back their old jobs. The guidance issued Friday requires companies seeking loan forgiveness to alert state unemployment offices if workers refuse their requests to return to work.

Banks will be required to issue decisions on borrowers' forgiveness applications within 60 days of receiving them. The SBA said it would then pay the lenders within 90 days. Lenders will lose the fees for any loans deemed to be ineligible, and the SBA said it could claw back already-issued fees, American Banker reported.

Some lenders were less than impressed. "They had us make a bunch of loans to businesses that don't qualify with the old 'don’t worry' and now it's on us," Ken Clayton, chairman and CEO of Western Bank in New Mexico, tweeted Saturday, referring to the SBA and Treasury Department.

"Just another Friday night where [SBA and Treasury] continue to muddy the forgiveness water to make it as complicated as possible to obtain forgiveness and bankers to manage it," Brad Bolton, president and CEO of Community Spirit Bank in Red Bay, Alabama, tweeted Saturday.

Bank of the West President Cindy Blankenship said many of the borrowers who received PPP loans through the bank haven't touched the money yet — possibly because they're confused about the terms.

"I think it's a mixture of uncertainty and anxiety and fear, and the uncontrollable factor about employment and rehiring," she told Reuters.

The bank stopped taking new PPP loan applications May 15. Fewer companies are applying for the loans nationwide — and some are returning funds, pushing net weekly PPP lending figures into the negative, SBA data showed, according to Reuters. The SBA had approved $512.2 billion in PPP loans as of Thursday — $150 billion or so less than had been approved for the program.

As the eight-week period to use the first PPP loans ends, some banks expect to devote a similar level of manpower to helping borrowers sort out forgiveness paperwork as they used to process loan applications. For Wayne, New Jersey-based Valley National Bancorp, that's 500 employees out of a 3,200-person workforce.

"Hopefully it doesn't all come at one time and we can stagger it over a period of time," CEO Ira Robbins told Bloomberg. "But I do believe there's going to be a lot of hand-holding associated with it as you walk through it."

Libby Morris, head of U.S. operations at Funding Circle Holdings, said for many lenders, the forgiveness effort may be full time for no revenue. "You pretty much have to build a new loan funnel and reprocess all of these loans again," she told Bloomberg.

Josh Knauer, general partner at JumpScale, an advisory firm, told Bloomberg he estimates half of PPP loans won't be forgiven.

Small-business owners seemed a little more optimistic, according to a survey published last week by the National Federation of Independent Business. About 54% of borrowers who received PPP loans expected all of their expenses to be forgiven, according to the survey of 685 respondents, conducted by email May 18. Another 27% of borrowers expected 75% or more of loan expenses to be forgiven.

Nearly half said it would be hard to spend the funds within eight weeks. And 38% said it would be very or somewhat difficult to spend 75% of the proceeds on payroll as required, according to the survey.

About 47% of small-business owners the NFIB surveyed said it was very or somewhat difficult to get their employee headcount back to pre-crisis levels. Nearly one in five said employees have declined an offer to return to work because of the unemployment benefits they’re getting.

Just less than half of borrowers (46%) report that spending the PPP loan within the eight-week forgiveness period is very or somewhat difficult. Another 34% find the requirement somewhat difficult.

About half of respondents said they planned to use their entire loan within eight weeks. Another 22% said they planned to return the unused funds to the bank. The remaining 27% of borrowers plan to keep the remaining funds as a 1% interest loan.

Only about 20% of the public companies that were given PPP loans — 68 out of 424 — have returned the money as of Friday, according to a review of corporate filings by FactSquared. Companies that had enough resources to get by without the loans had until May 18 to return them without facing any sanctions.