Dan Rodricks

Dan Rodricks: He thought his PPP loan would be forgiven. Instead, he got a bill from his bank. | COMMENTARY

Bob Kleinschmidt, a self-employed management consultant, looks over a letter from Bank of America declaring his PPP loan, secured for his business in the pandemic, in default.

Bob Kleinschmidt is a mild-mannered, self-employed management consultant and corporate leadership coach. He teaches managers how to be better managers, and all workers of the world know what a vital service that can be.

Kleinschmidt has been doing this sort of work for 20 years, the last five trading as C3 Transformation. His clients are in health care and higher education, biotech and pharmaceuticals; they include managers in government agencies, companies and nonprofits.


Like thousands of Americans running a business, when the coronavirus arrived in 2020, Kleinschmidt worried. His client list, and thus sales, shriveled up.

So he applied for help from the federal government in the form of a forgivable loan through the $349 billion Paycheck Protection Program, established by Congress to help businesses and their workers weather the pandemic. The Small Business Administration implemented the program while banks authorized and serviced more than a million loans in a hurry.


The precise amount of each loan to be forgiven depended on businesses meeting SBA criteria — that pre-pandemic payroll costs were maintained; that loan proceeds were spent “on payroll costs and other eligible expenses” with at least 60% of the loans used to cover payroll.

In spring 2020, Kleinschmidt applied for a PPP loan through the institution he’s used for personal banking for two decades, Bank of America. He didn’t ask for a huge amount, and he’s grateful his loan was approved.

It’s the forgiveness part that’s now giving him heartburn.

I’ll quote from a long summary Kleinschmidt wrote about his experience:

“The application process allowed you to include expenses like payroll, rent, utilities, business operating expenses and health insurance benefits. I was originally given $27,652 as an initial PPP loan. Bank of America reviewed and approved the loan based on those calculations.”

But, a year later, when Kleinschmidt applied for loan forgiveness, the bank drew a line:

“Bank of America is now saying that I was overfunded for the loan at the time because I included [rent, utilities, business expenses and health insurance] in the calculation.”

Kleinschmidt learned that the bank would only forgive the payroll portion of the loan, $20,833. He was on the hook for about $6,800, and last week he received a statement saying he was in default.


So that’s the issue as Kleinschmidt sees it: Bank of America approved a PPP loan that covered his pay plus his expenses, but somewhere along the line the bank changed its mind about what it would potentially forgive.

“And,” says Kleinschmidt, “there’s no opportunity to appeal.”

I looked at eye-glazing federal documents and online content about the PPP and, unless I missed something, it appears that a sole proprietor like Kleinschmidt was eligible to apply for a loan that covered a certain portion of his annual pay and the expenses listed in the SBA guidelines.

A representative of Bank of America says otherwise, that sole proprietors are only eligible for payroll coverage up to the amount specified in the rules. For someone who made $100,000 or more in 2019, before the pandemic, that would be $20,833.

Plus, I was told, business owners who applied for the loan, and not the banks, are responsible for getting the numbers right under the rules. If the amount requested was not accurate and, thus, not entirely forgivable, the outstanding balance can be paid back over five years at 1% annual interest.

Kleinschmidt insists that he was eligible for expenses on top of payroll. He says he’s identified from internet searches at least 23 other business owners who have expressed similar problems with PPP forgiveness.


Worth noting: To streamline PPP loan forgiveness last summer, the government opened an online portal for businesses that received less than $150,000 through the program. But BOA, PNC and JPMorgan Chase opted out of the SBA’s direct loan forgiveness process and started conducting their own.

A statement on the Bank of America website reads, “Our decision to opt out of the SBA’s forgiveness portal will not impact the outcome of your forgiveness application. You will need to apply directly with Bank of America when you receive the Forgiveness invitation.”

A report in The Intercept in August suggested that the decision by major banks to opt out of the SBA portal could “leave their small business customers with no other recourse if the banks refuse to forgive loans or drag out the process.”

And that’s where Bob Kleinschmidt has been for the last several months — stuck in a bureaucratic limbo between BOA and the SBA, unable to appeal the bank’s refusal to forgive his entire loan.

“When I talk with Bank of America, as I have been doing for the last 8 months, they say I have to make an appeal with the SBA,” Kleinschmidt says. “Neither the SBA nor Bank of America are accepting responsibility for the fact that they changed their loan forgiveness guidance after the loans were distributed. … My loan at this point is requiring me to make payments and I have no choice but to move forward to accept Bank of America’s incorrect decision because the SBA and Bank of America actually have no process to appeal the forgiveness decision.”

Sounds like one of Maryland’s senators, Ben Cardin or Chris Van Hollen, need to get staff on this and clear it up. Federal intervention is needed here, and so requested.