Credit unions capitalize on PPP loan sell-off trend

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A Nevada credit union has joined the ranks of Paycheck Protection Program lenders who have opted to sell their portfolios.

Greater Nevada Credit Union in Carson City has sold “substantially all” of its $556 million PPP portfolio to Fountainhead Commercial Capital in Lake Mary, Fla., Fountainhead CEO Chris Hurn said Monday in an interview. The $1.1 billion-asset Greater Nevada did not disclose sale terms.

The credit union’s loan sale follows decisions by several community banks to sell their Paycheck Protection portfolios or outsource the loan forgiveness process. The $5.3 billion-asset Bryn Mawr Bank Corp. in Bryn Mawr, Pa., announced June 29 that it had sold the lion’s share of its $300 million PPP portfolio to The Loan Source, another nonbank small business lender, for an undisclosed sum.

The $1.2 billion-asset Northeast Bank in Portland, Maine said June 26 that it had struck a deal with The Loan Source to sell its $458 million PPP portfolio for $9.8 million.

While $18 billion-asset Atlantic Union Bankshares in Richmond is not selling its $1.7 billion-asset PPP portfolio, it hired an outside company to handle its forgiveness workload after determining that it could not spare the personnel to do the job in-house.

Recent data from the Small Business Administration shows credit unions issued 196,000 PPP loans supported 1.8 million jobs, with an average loan size of just under $50,000. Credit unions accounted for 4% of the nearly 5 million PPP loans on the books through June 30.

Greater Nevada, which was one of the most active credit union PPP lenders, is among the most active U.S. Department of Agriculture lenders in the country. As its USDA business picked up, it feared its staff might not be able to handle the PPP forgiveness burden at the same time.

“We made a choice from a resource-allocation perspective,” CEO Wally Murray said in an interview.

Forgiveness “is definitely a manpower issue,” Hurn said. “We’re dealing with it ourselves. We’re trying to pivot more people back to our traditional lines of business, as we continue making Paycheck Protection loans.”

Through Tuesday afternoon, Fountainhead had originated 1,976 PPP loans for $288.3 million.

Community banks that were pushed past key asset limits by the Paycheck Protection Program say they will be unable to shrink their balance sheets back to normal size by the 2022 deadline, especially if there is a new round of rescue aid.
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At the same time, Fountainhead sees profit potential in buying discounted portfolios from sellers frustrated by the complexity and unanswered questions surrounding Paycheck Protection forgiveness.

Offered to businesses with 500 or fewer employees impacted by the coronavirus pandemic and resulting economic shutdowns, PPP loans can be forgiven by SBA if proceeds were spent on employee salary and benefits, rent or mortgage interest, utilities and other business expenses.

However, PPP lenders, who are expected to process the applications and make forgiveness decisions subject to final approval from the agency, are still waiting for answers from SBA on crucial questions, including how closely they will be expected to review the millions of forgiveness applications they’re expected to receive.

Trade groups representing borrowers and the financial services industry have called repeatedly in recent weeks on SBA and the Treasury Department, which are jointly administering Paycheck Protection, to implement blanket forgiveness for loans under $150,000. That would cover 85-90% of PPP borrowers, according to the American Bankers Association and the National Association of Federally-Insured Credit Unions.

“Lenders and borrowers would benefit tremendously from forgiveness,” Hurn said. “For the borrowers, it’s like going through another tax season. I’d like to see [the threshold] increased to $350,000.”

Under a bill introduced June 30 by a bipartisan group of Senators, PPP loans under $150,000 would be automatically forgiven once the borrower submitted a one-page attestation form to the lender.

Fountainhead and The Loan Source are each looking to buy more PPP loans. Both companies are licensed as small business lending companies by the Small Business Administration. Fountainhead has held conversations with more than a dozen potential PPP sellers, according to Hurn.

“We’d love to buy from more sellers,” he said. “If they have $25 million or more, then it starts to get interesting.”

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Paycheck Protection Program Commercial lending MBL SBA Coronavirus