Tilt toward smallest lenders is latest PPP wrinkle to confound banks

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A flurry of changes to the Paycheck Protection Program — new filing requirements, a planned audit of big loans and a last-minute decision to temporarily restrict many banks’ ability to submit applications — is confounding lenders of all sizes.

The effort to infuse nearly $660 billion into small businesses harmed by the coronavirus pandemic initially frustrated bankers as they struggled to gain approvals for a backlog of applications.

Now those lenders are dealing with ever-changing guidance from the Small Business Administration and the Treasury Department.

Smaller banks were pleased with the agencies’ decision Wednesday to block lenders with more than $1 billion in assets from using the SBA’s E-Tran portal over an eight-hour period that evening.

Still, some expressed frustration with a requirement to complete a form that has yet to be distributed to lenders. And the decision to scrutinize large-dollar loans, without guidance on what will be reviewed, has also left many bankers scratching their heads.

A downtown retail district is empty due to concerns about coronavirus.

Keeping up with the evolving directives “is very challenging,” said Todd Nagle, CEO of the $1.4 billion-asset IncredibleBank in Wausau, Wis.

Most of the policies benefit borrowers and protect banks, but, "Unfortunately, now the program is getting political and seems to be straying from its original mission, which was to keep employees working,” Nagle said.

“It’s frustrating to get new guidance and FAQs daily,” said Brad Bolton, president and CEO of the $150 million-asset Community Spirit Bank in Red Bay, Ala.

The agencies are relying on a hodgepodge of tactics instead of an upfront strategy, industry experts said.

“This all should have been done on the front end,” said Julio Gonzalez, the CEO of Engineered Tax Services in West Palm Beach, Fla., comparing the process to Monday morning quarterbacking.

“Changing the rules midstream is so unsettling for small business owners,” Gonzalez said. “Banks should have specific rules for distribution.”

Calls for this article to the SBA were not immediately returned.

The agencies’ announcement that they will review loans exceeding $2 million when a lender submits a borrower’s application for debt forgiveness comes on the heels of reports that some unqualified applicants were approved for loans.

Borrowers were required to make a “good faith certification” that economic dislocation triggered by the pandemic “makes necessary the loan request to support the ongoing operations of the eligible recipient.”

“Banks worked around the clock to implement this program based on the limited guidance given,” Richard Hunt, president and CEO of the Consumers Bankers Association, said in a statement to American Banker.

“Any changes midcourse should take into account the original goal of this program, which was to get assistance in the hands of as many qualified small businesses and their employees as quickly as possible,” Hunt added.

Gonzalez said several of his clients received Paycheck Protection loans in excess of $2 million. He said none of his clients are publicly traded.

“Their biggest fear is uncertainty,” Gonzalez said. “What does this mean? It’s frightening to clients that have received funding to learn that maybe the rules are changing midway through the program. ... We all should discourage fraud, but we played by the rules."

Another headache is Form 1052, a document lenders typically file monthly in accordance with the SBA's flagship 7(a) program. The form helps the agency collect payment and loan information.

The SBA is requiring banks to complete the new form, which it hasn't distributed, to receive their processing fees. Lenders that receive approvals prior to receiving the new form face a May 18 deadline to complete it. Once the form is available, lenders will be required to turn it in within 20 calendar days after loan approval.

Referencing the form policy and quoting a colleague, Bolton tweeted Wednesday morning that the SBA and Treasury "continue to build the airplane while we fly it."

The initial authorization for the Paycheck Protection Program was included in the coronavirus stimulus package enacted in late March. Against a backdrop of sharply rising unemployment claims, the program was intended to speed emergency funding to small businesses and, by extension, their employees.

Along with the Treasury, the SBA is administering the initiative as part of its 7(a) program. Structured as two-year loans, the credits are 100% guaranteed. The loans can be forgiven if borrowers meet certain requirements; interest on any unforgiven amounts is capped at 1%.

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Paycheck Protection Program Community banks Small business lending SBA Treasury Department Coronavirus