Congress wants to extend PPP, lenders ready to move on

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Bankers are largely ready to move on from the Paycheck Protection Program, even as lawmakers discuss extending the effort through the rest of the summer.

Treasury Secretary Steven Mnuchin told the House Small Business Committee last week he was receptive to proposals to keep the PPP open past its scheduled Aug. 8 expiration, while suggesting that legislators add to the program’s $131 billion in remaining funds.

Legislators are also working on a bill to grant small businesses access a new round of PPP funding if they have less than 300 workers and “substantial revenue loss,” Sen. Marco Rubio, R-Fla., tweeted on Tuesday morning.

While bankers still support the program conceptually, they are less enthused about participating. For many, the time has come to focus on PPP loan forgiveness, assessing the status of deferrals and pursuing traditional lending opportunities.

“None of the bankers I’ve talked to regret participating, but we’re worn out from borrowers asking when their loans will be forgiven,” said Robert Franko, president and CEO of the $2.2 billion-asset First Choice Bancorp in Cerritos, Calif.

Though he still backs PPP, John Buhrmaster, president and CEO of 1st National Bank of Scotia in Scotia, N.Y., said the $492 million-asset bank’s lenders are “absolutely” fatigued from working their way through the program’s complexities.

“This is a community service,” Buhrmaster added, pointing to the 1% interest rate cap for PPP loans. “With the amount of time and how we had to change the structure of our bank to produce these loans, it’s not a profitable business.”

Banks receive fees for PPP originations, but they will be recognized over the life of the loans. The economics changed when recent legislation increased the amount of time borrowers have to spend PPP proceeds from eight weeks to 24 weeks.

“Initially, those fees looked pretty good,” Buhrmaster said. “Now that it’s a 24-week program, the amortization of those fees is definitely not as attractive.”

Lenders have originated less than 500,000 PPP loans since May 30, according to data from the Small Business Administration. Nonbanks, which represent about 15% of approved PPP lenders, have accounted for nearly a quarter of those loans.

John Pitts, Plaid’s head of policy, blamed the sense of lethargy on the numerous adjustments to the program's rules since its April 3 debut.

“A lot of those adjustments have been necessary and have actually improved the program,” Pitts said. “A huge amount of energy went into this. A lot of lenders made multiple adjustments to keep up with the program, but those changes have had a cost.”

The same thinking holds true for credit unions.

“There has to be a concrete set of rules and guidelines so everyone knows the playbook,” said Geoff Bacino, a former National Credit Union Administration board member who is now a partner at Bacino & Associates, a consulting firm in Alexandria, Va. “For credit unions, it’s been like drinking from a firehose.”

The program ran out of its initial $349 billion appropriation after just 13 days of operation.

New loan originations resumed April 27, when Congress approved another $310 billion in funding. About 40% of the added funds remain nearly three months later.

The program was originally designed to offer stimulus relief to small businesses with 500 or fewer employees impacted by the pandemic. Loan proceeds spent on expenses such as payroll, rent, mortgage interest and utilities can be forgiven.

Bankers, meanwhile, are making preparations in hopes that Congress streamlines forgiveness for smaller loans.

“We’re so confident that they’re going to [accommodate loans of] $150,000 or less, we’re asking those borrowers to gather their documents and just hold them,” Buhrmaster said. “For borrowers with over $150,000, we have sent them a forgiveness application so they can start filling it out.”

While bankers seem burned out on identifying new borrowers, Pitts said they could be interested in offering new loans to existing participants.

“The provision most likely to reinvigorate [PPP] involves providing an opportunity for businesses that went through the program once to extend out the amount of [funding] to cover a longer period than was originally anticipated,” Pitts said.

At the same time, bankers in a number of states are seeing a rebound in retail activity and a continuing surge in mortgage applications. Their preference would be to allocate more resources to those business lines.

“We’re starting to pick up regular business again” around San Diego, Franko said. “That’s gratifying.”

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Community banks Paycheck Protection Program Coronavirus SBA Small business lending