Bankers seek clearer guidance on forgiving PPP loans
New forgiveness guidance for the Paycheck Protection Program has provided some clarity for bankers eager to know all the ground rules.
The Small Business Administration and Treasury Department released partial directions, along with an application, late Friday. That should help lenders and borrowers begin the process of having PPP loans converted into grants.
Still, lenders want more protections when it comes to verifying borrower data. And they are pushing for more flexibility securing forgiveness for nonpayroll expenses.
But any progress after weeks of delays is welcome news.
“We were definitely excited to receive that guidance,” said Christopher Chapman, the chief operating officer and chief information officer for national banking at the $49 billion-asset TCF Financial in Detroit.
“It’s certainly a good start," Chapman added. "We have been thinking about forgiveness for several weeks now, so it starts to fill in some of the pieces."
Lenders have made more than 4.3 million PPP loans for $513.2 billion, making the program one of the government’s signature responses to the coronavirus crisis. Paycheck Protection loans have a 1% interest rate and two-year duration, but proceeds spent on payroll costs and basic operating expenses such as rent, mortgage interest and utilities are eligible for forgiveness by the government.
The coronavirus stimulus package, which authorized the PPP, directed the SBA and Treasury to publish forgiveness guidelines “not less than 30 days after the date of enactment,” a deadline that passed on April 27.
In an indication of just how determined lenders are to start submitting forgiveness applications, the American Institute of Certified Public Accountants said a forgiveness calendar it unveiled Thursday and revised Monday is receiving heavy interest. Interest in the calendar is on par with the association's application calculator, which has had more than 70,000 downloads.
“We’re already getting feedback from members who’ve been anxiously awaiting some kind of tool to help them work with their clients,” said Lisa Simpson, the institute's director of firm services.
The SBA and Treasury released an 11-page application form containing a template intended to help borrowers calculate their forgiveness amounts. Accompanying instructions answered some outstanding questions.
Borrowers, for instance, can submit both accrued and actual expenses incurred during the eight-week period in which they’re required to spend the proceeds from their loans.
Small businesses can also sync that coverage period with their payroll schedules, “which is important for administrative ease,” said John Asbury, president and CEO of the $17.8 billion-asset Atlantic Union Bankshares in Richmond, Va.
“I think that was a very smart move on the SBA’s part,” Asbury said. “It makes it less burdensome for the borrower.”
Still, Friday’s guidance left several vital issues unaddressed.
Additional guidance should be expected, either in the form of an interim rule or new FAQs, said Suzie Saxman, a lawyer at Seyfarth.
Bankers would like the agencies to confine the scope of a lender's responsibility for comfirming borrower information.
“The outstanding question is do we have any other responsibilities beyond accepting that forgiveness application,” said Asbury, who is also incoming chairman of the Virginia Bankers Association.
“Are we required to look at the payroll documentation and try to reconcile that back to the amount [borrowers] requested?” Asbury added. "From our standpoint, if the requirement is to collect the forgiveness application form, ensure that the proper documentation is provided and send it on to the SBA, that’s a really good outcome. That’s as good as it can get."
Even more crucially, lenders are hoping the SBA and Treasury will adjust program guidelines to allow for more nonpayroll spending. As things stand, nonpayroll spending is limited to 25% of loan proceeds. That threshold was implemented during the rulemaking process; it isn't part of the law's text.
“There’s been a lot of interest in the percentage of the loan that must be used for payroll purposes versus other expenses,” Chapman said. “It certainly could help customers if they could put more of that forgiveness toward nonpayroll expenses. ... Many small businesses would benefit from that.”
“The SBA could do that today and ... allow up to 50% to be nonpayroll expenses," Asbury said. "That would be very helpful. I personally believe it’s more likely than not that we’re going to see some relaxation of these requirements."
TCF and Atlantic Union have leveraged technology to make a large number of PPP loans. TCF has made than 16,000 loans for $2 billion, while Atlantic Union has approved more than 11,100 loans for $1.7 billion.
While the SBA and Treasury indicated that more guidance is coming, lenders said that Friday’s instruction provided enough details for them to begin building online forgiveness modules.
“We definitely intend to use technology to make it as efficient as possible,” Chapman said.
“Our approach has been really to lead with digital, to be able to respond to our customers and give them digital tools to be able to apply and get updates on the progress associated with their loan,” Chapman added. “We’re envisioning using a similar approach to forgiveness.”
Atlantic Union has "been working on this now for a couple of weeks,” Asbury said of the forgiveness process. “We’ve been making educated guesses at what [the application] might look like.”
Other lenders have mobilized around the recent guidance.
CapStar Financial Holdings in Nashville, Tenn., on Monday began offering a web seminar and forgiveness application calendar to its borrowers. The $2.1 billion-asset company has made 1,500 PPP loans for $236 million.
The Paycheck Protection Program's momentum has slackened recently. Industry experts have pointed to what had been a lack of clarity on forgiveness and the possibility that many in-need borrowers have already applied.
Volume “has definitely slowed from the peak … but we're still open and we're still receiving a steady flow of applications,” Chapman said, noting that TCF has brought in 3,000 new customers with the program. “We’re continuing to see demand from existing and new-to-the-bank customers.”
Atlantic Union is receiving 50 to 70 applications a day, Asbury said, adding that about a fifth of the approved loans are for new customers.
Paycheck Protection “has been a brand builder like nothing I thought was possible,” he added. "We’re still open and we’ll stay open as long as the funding remains available.”