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Reps Houlahan, Chu and Small Business Chairwoman Velázquez: Stop Unfairly Penalizing PPP Borrowers

40-member effort seeks reform on ‘Good Faith Error’ rule

WASHINGTON, D.C. – Today, Representatives Chrissy Houlahan (D-PA) and Judy Chu (D-CA), Small Business Committee Chairwoman Nydia M. Velazquez (D-NY), and 37 colleagues sent a letter to SBA Administrator Isabella Casillas Guzman urging common sense reform to the Paycheck Protection Program (PPP). Currently, over 300,000 PPP borrowers are facing financial hardship due to good faith loan amount miscalculations, some due to no fault of their own.


SBA defines an “excess loan amount error” as a borrower or lender error made in good faith that caused a borrower to receive a PPP loan amount exceeding the borrower’s correct maximum loan amount under the CARES Act and the Economic Aid Act. SBA policy is that these loan amounts are not eligible for loan forgiveness and must be repaid, even if they were spent on forgivable uses during the covered period, regardless of whether the borrower or the lender caused the error.


“The constant and rapidly changing nature of PPP rules combined with numerous other factors created circumstances making it inevitable that the smallest businesses, which are the least likely to have access to attorneys or accountants, would make good faith loan amount miscalculations,” the members wrote.


“The average excess loan amount error is $12,403—an unexpected bill that is hurting our smallest businesses just as they are trying to recover from a global pandemic,” said Houlahan. “These are businesses that used these funds for the intended purposes: keeping workers on payroll, customers safe, and our Main Streets open. We need to fulfill our promise to our small business owners by fixing this poor policy.”


“Small businesses that turned to PPP for relief during a once in a lifetime crisis, did so believing that their loans would be fully forgiven if used properly. Penalizing borrowers for making good-faith loan calculation errors would hurt vulnerable small businesses at a time when they can least afford it,” said Chairwoman Velázquez. “It’s vital that SBA take action and work with Congress to resolve this situation and ensure that small businesses hurt by the pandemic aren’t stuck with an unexpected bill.”


“The Paycheck Protection Program (PPP), established at the beginning of the COVID-19 pandemic, has been a lifeline for small businesses nationwide. However, due to complex and quickly-changing rules concerning PPP, some lenders and borrowers made good-faith calculation errors — resulting in receiving higher loan amounts than they were eligible for. Now, these borrowers are unfairly being asked to repay those excess loan amounts, even if they already spent the funds appropriately, which is unacceptable,” said Rep. Judy Chu. “That is why I’m proud to join Rep. Houlahan and Chairwoman Velazquez in sending this letter to the Small Business Administration (SBA) to better understand these ‘excess loan amount errors,’ and find appropriate relief for borrowers. I am committed to delivering on the promise of PPP and ensuring small businesses who used their loan funds as Congress intended are fully forgiven.”


Read the full text of the letter here.


The effort is supported by a wide range of borrower, lender, and small business organizations.


“The Good Faith Error Rule particularly penalizes small business owners and businesses owned by people of color, exacerbating inequities and causing further harm to those least able to withstand the financial blow,” said Sunny Glottmann, a researcher at CRL. “Small businesses are the backbone of America’s economy, and forgiveness rules should help, not hurt, the owners who most needed assistance during the prolonged COVID-19 public health emergency.”


“Congress made a promise to businesses who applied for PPP, saying that so long as business owners spent the money on keeping people employed during the pandemic, the loan would be forgiven,” said Rebecca Shi, American Business Immigration Coalition, Executive Director. “So, at a time of extreme uncertainty, small businesses trusted the government, and now there are more than 300,000 small businesses that spent the money correctly, but – because of an SBA rule – are not eligible for loan forgiveness. We need the rule to change and thank Rep. Houlahan for advocating on behalf of the small business owners now facing crushing debt because they believed their government's promise.” 


“PPP rule changes were made virtually every week— this caused confusion, saddling some of the smallest borrowers with unexpected PPP debt,” said Tony Wilkinson, President/CEO of NAGGL. “The funds already provided by Congress for PPP forgiveness of these loans are sitting unspent at SBA, meaning helping these borrowers is a no-additional cost solution. NAGGL applauds Congresswoman Houlahan, Chairwoman Velázquez, and others who are leading the conversation to help those small businesses who can least afford to pay for the federal government’s confusion.


“ICBA and the nation’s community bankers strongly support Rep. Chrissy Houlahan’s call for the Small Business Administration to forgive Paycheck Protection Program loans in which the loan amounts were miscalculated due to good-faith errors,” said ICBA President/CEO Rebeca Romero Rainey. “The SBA should forgive excess loan amounts in cases in which errors were made in good faith and the loans were used for forgivable uses, to avoid imposing unexpected debt on small businesses that did their part to pay employees and serve customers during the worst of the pandemic.”


“Credit unions of all sizes were proud to offer more than 170,000 PPP loans to help keep businesses afloat during an unprecedented pandemic,” said CUNA President/CEO Jim Nussle. “Credit unions rose to meet the challenge, despite confusing and ever-changing rules and guidance, because their communities needed them to. The ‘Good Faith Error’ rule would help forgive these loans for businesses that were doing their best to stay open during unpredictable times and it has our full support.”


“NAFCU thanks Representative Houlahan and the other signers of the letter for their leadership in urging the SBA to revisit the ‘Good Faith Error’ rule and their ability to provide relief,” said NAFCU’s President/CEO B. Dan Berger. “As America’s small businesses, and the small financial institutions like credit unions that support them, continue to recover from the pandemic, they deserve a fair opportunity for equitable economic recovery originally promised by the SBA under the paycheck protection program, and not punishment for unintended errors.”


The full list of endorsing organizations:

·         American Business Immigration Coalition (ABIC) 

·         AmPac Business Capital 

·         Appleseed Foundation 

·         California Association for Micro Enterprise Opportunity (CAMEO) 

·         Center for Responsible Lending (CRL) 

·         California Reinvestment Coalition 

·         Credit Union National Association (CUNA) 

·         Greater Haitian American Chamber of Commerce of Orlando 

·         Independent Community Bankers of America (ICBA) 

·         Local First Arizona 

·         Local Initiatives Support Corporation 

·         Main Street Alliance 

·         National Association for Latino Community Asset Builders 

·         National Association of Federally-Insured Credit Unions (NAFCU) 

·         National Association of Government Guaranteed Lenders (NAGGL) 

·         National Coalition For Asian Pacific American Community Development 

·         Opportunity Finance Network (OFN) 

·         Pacific Community Ventures 

·         Prospera 

·         Prosperity Now 

·         Self Help Federal Credit Union 

·         Small Business Majority 

·         The LisaB Company 

·         The Resurrection Project 

·         United States Hispanic Chamber of Commerce 

·         Working Solutions CDFI 


Houlahan is an Air Force veteran, an engineer, a serial entrepreneur, an educator, and a nonprofit leader. She represents Pennsylvania’s 6th Congressional District, which encompasses Chester County and southern Berks County. She serves on the House Armed Services Committee, the House Foreign Affairs Committee and the House Small Business Committee. She is the recipient of the U.S. Chamber of Commerce’s Abraham Lincoln Leadership for America Award which “recognizes members who demonstrate the bipartisan leadership and constructive governing necessary to move our country forward.”