For 24 years, Ericka Gray has owned her own mediation and arbitration business in Arlington, Massachusetts, helping organizations navigate workplace disputes. But when the Covid-19 pandemic began, her income completely dried up. “I had no business, nothing for a number of months,” she said. “Everybody was otherwise occupied.”

Her bank, Citizens Bank, kept sending her emails prompting her to apply for a loan from the Paycheck Protection Program, which Congress passed early in 2020 to issue relief money to small business owners in order to keep workers employed and companies from shuttering. If used mostly on payroll, with a small portion on other expenses like rent or equipment, they would be entirely forgiven; otherwise they’d be converted to loans with 1 percent interest.

But Gray found the application difficult to parse as a sole proprietor. “I had no idea what to ask for,” she said. So someone from her bank walked her through it and told her what she was eligible to receive. The bank wanted her full 2019 tax return to determine eligibility, which she provided.

In May 2020, Citizens approved her for a $5,800 PPP loan. It wasn’t a huge sum compared the multimillion-dollar loans some corporations received, but Gray had enough income to pay her mortgage and cover her health care costs.

But in May 2021, Gray received a shocking email from Citizens explaining that no, she shouldn’t have received $5,800. Instead, a bank representative later told her on the phone, she was in fact only eligible for $3,837. The difference won’t be forgiven, and she’ll have to pay it back. Citizens did not respond to a request for comment.

Gray is not the only person whose bank has reversed its stance on how much PPP money they should be eligible for and demanded repayment. Three other small business owners told The Intercept they have similarly been notified by their different lenders that they shouldn’t have received the amount they were approved for and that they’ll have to pay back the difference. The loans are all under $10,000, a tiny slice of the $800 billion program. “The amount is so small, I’m surprised [the banks] would even do anything with that,” said Daryl McLinden, managing director at finance and accounting firm TMG Consulting, who has been focused on helping clients navigate PPP loans. A $5,000 PPP loan is “like a rounding error,” he said. (Over 85 percent of PPP loans were for under $50,000; loans over $1 million made up just 0.4 percent of the total.) But having to pay the money back will be a hardship for these small business owners who are still trying to climb their way out of a deep financial hole.

After Gray was repeatedly unable to submit her forgiveness application earlier this year, she threatened to sit in the Citizens Bank corporate office until someone talked to her. Eventually she got through, only to be told she now owes nearly $2,000.

Gray’s bank is demanding she provide a payroll report and evidence of employer-provided health care. But she doesn’t have payroll since she’s the only employee. She went on Medicare two years ago so can’t provide that documentation either. She’s also being told rent on her home office is not allowed.

Two thousand dollars would seem to be pennies for a bank like Citizens. And while Congress never followed through on the demand to automatically forgive loans under $150,000, the Small Business Administration, the agency responsible for administering the PPP, did simplify the process for loans under that amount, allowing business owners to fill out a one-page form and simply attest they complied with the requirements. Owing $2,000 is no small thing for Gray. She’s disabled and on a fixed income. After a spurt of business in the last half of 2020, it’s all dried up again. She thinks she’ll probably have to close her business entirely within the next six months. The only means she has to pay the money back is a small inheritance left to her after her mother died last July. She’s not the type to cry or give up in frustration, she said, but she’s found herself in helpless tears.

Had she known her bank might turn around and refuse to forgive her full loan, “I wouldn’t have taken it,” she said.

In emails sent to business owners and reviewed by The Intercept, two of the banks say they are responding to new guidance released earlier this year by the SBA. But while experts acknowledge the SBA has released a lot of updated guidance over the last year, it’s unclear what specifically banks are referring to. Jeanette Quick, lead counsel for financial services at payroll company Gusto, has heard from small businesses and lenders that the SBA is returning forgiveness applications submitted by banks based on new parameters for what the maximum loan amounts should have been, although there is no systematic tracking for how many business owners this issue is affecting. In an attempt to ferret out fraud, “It has created the potential to have swung too far the other way,” she said, and cracked down on legitimate businesses who received legitimate loans. The SBA declined to comment for this story, and the Treasury Department didn’t respond to a request for comment.

“I am aware of the circumstances facing these small business owners and am monitoring the situation closely,” Rep. Nydia Velázquez, who is chair of the House Committee on Small Business, told The Intercept in response to this story. “This pandemic has devastated small firms across the country, especially the smallest of small business, and they can’t afford surprise bills now as they are beginning to recover. My staff and I are engaging with the SBA on this issue and working to ensure that small businesses are protected.”

Even if SBA guidance has changed, the banks vetted the applications and issued the loans. If there was a problem with the original application, “Why did they give it to them in the first place?” McLinden asked.

No matter what’s going on, it may feel like a bait and switch. Businesses were urged to secure PPP loans and assured by the SBA, lenders, and Congress that they would be forgiven if used correctly, Quick noted. “It feels a little bit like they’re changing the rules of the game as the game is going along,” she said. “It is very unfair.”

Gray agrees. “They’re spending a ton of money to try to claw back tiny amounts of money from people who desperately need it,” she said.

In May, Edgar Comellas received an email from his lender, Bank of America. “On January 15, 2021, the Small Business Administration (SBA) issued guidance stating a borrower may not receive Paycheck Protection Program (PPP) loan forgiveness for any amount that exceeds the ‘correct maximum loan amount’ under the CARES Act and Economic Aid Act,” it said. “Based on SBA rules and the documentation you provided in your original application, your maximum loan amount (and, therefore, the maximum amount of forgiveness you can receive) is less than the funding you received in connection with your first PPP loan.” In other words, he wasn’t going to get his entire PPP loan converted into a grant.

“I was worried and started panicking,” Comellas said.

Comellas, who owns an events company in Orlando, Florida, had applied the very first day Bank of America’s PPP portal opened up, providing his 940 and 941 tax documents, his profit and loss statement, his balance sheet. “Anything they requested, we put in the system,” he said. After his application was approved and he had received a PPP loan of $5,494, Comellas assumed the only thing he had to do to get the loan forgiven would be to spend the money correctly. He documented his expenses meticulously and submitted it when he sought forgiveness.

But now his bank is saying he has to pay back $3,281. The problem, he’s been told, is that while his income is seasonal — big business in the winter that slows down in the summer — he has to find a way to prove it. He’s stuck in a game of telephone between Bank of America and the SBA, trying to get an answer from someone. He feels like he’s on a conveyor belt, he said. “There are so many of these loans, it’s bulk manufacturing,” he said. “Individuals are not being assessed.”

The money he owes will be converted into a loan, but Comellas doesn’t want the debt. Thanks to a return of some of his business, he’ll be able to pay it back, but it’ll come at a cost. He won’t be able to invest in new equipment, more full-time staff, or marketing efforts to bring in new customers.

“The people who are paying for it are not the banks, not the SBA,” he said. “It’s the real small businesses who are going to be hurt.”

In response to a request for comment, Bank of America spokesperson Bill Halldin said, “In the forgiveness process, we are required to follow the Small Business Administration’s rules and guidance.”

Laura Zimberg has been self-employed as a massage therapist in Buffalo, New York, since 2005. In early 2019 she decided to expand and secure her own massage spaces, which meant spending money on building them out. After her state shut down in early 2020, she got a $10,000 PPP loan from Bank of America that allowed her to not just cover her own income, but also pay rent for her two locations.

But in February, when her bank opened up its forgiveness portal, she couldn’t complete the application. Weeks later, when she was finally able to reach someone at the bank, she was told that she wasn’t eligible for any PPP money because line 31 on her 2019 Schedule C tax return was negative — an effect of having spent money to expand her business. Such an issue had never been raised when she was applying, she said.

“All the time I was being reassured that, ‘Don’t worry about it, if you use it right you’ll be forgiven,’” she said. “Now the SBA is saying, ‘No, I’m sorry, you’re out of luck.’”

She’s not sure how she’ll pay the $10,000 back. “It’s devastating,” she said. Most of her clients still haven’t returned out of fear of getting Covid-19.

In the end, Quick noted, “Small businesses will be left holding the bag.” And many, if not most, are not fully recovered from the pandemic. “It’s just another economic shock to the system.”

That may not just impact them now as they try to recover from the pandemic. In the longer term, Quick fears it’ll create distrust in the system, especially for women- and minority-owned businesses that sought government loans for the first time. “This only worsens mistrust and creates a further divide for access to capital,” she said.

The experience with his PPP loan is one big reason why Jesse Grund has decided to give up altogether. He’s owned a small personal training studio in Orlando, Florida, since 2014. He decided to close his doors voluntarily at the onset of Covid-19 because he didn’t have the space to keep clients safe. He moved what he could online but still experienced a big loss of revenue, and his landlord refused to work with him on rent payments.

When he first applied for a PPP loan through PNC Bank by uploading his 2019 tax return, he was told he was only approved for $917. But when he contacted a vice president at the bank she asked for additional documentation, and he sent over his lease outlining his rent. She said she had what she needed to move his application forward, and he received $5,000. He quickly spent the allowable amounts on payroll and rent.

Then in April he got an email from PNC similar to the one Comellas received from Bank of America, citing new SBA guidelines from January. “After a careful review of your original PPP loan file and associated submitted documents, we have discovered possible discrepancies that need to be resolved to allow for full forgiveness of your loan,” it said. It said his “Correct Maximum Loan Amount” was just $917, not the $5,000 it had given him. “Unfortunately, the Excess Loan Amount is not eligible for forgiveness and must be repaid, along with interest.” PNC did not respond to a request for comment.

“I had done everything they’d asked me to do,” he said. “I felt very abandoned.” His business is still far below what it was in 2019, and he’s still losing clients due to job losses. So he’s decided to start graduate school next month. He’s not sure what he’ll do with the gym, but he is sure about one thing: “I’ve decided I’m done with small business ownership.”

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