A Lingering Challenge for PPP Lenders: Forgiving Large Loans



As the final discontinuation of payroll protection lending approaches, the forgiveness of large dollar loans continues to be a stumbling block for lenders.

While some bankers say the Small Business Administration has made progress in reducing the number of overdue forgiveness applications, others have complained about requests that have been in line for months without being told by the agency when they will be resolved.

“With the smaller loans, they get them and they get them … It’s a really simple process,” said Bobby Berman, executive vice president of the $ 44 billion Frost Bank research and strategy group, based in San Antonio. based on Cullen / Frost Bankers. “For the large ones that require more careful analysis, they seem to be a little limited in resources.”

Under the terms of the program, loans can be forgiven if the borrower proves that most of the money was used to pay wages, rent and other expenses.

Small businesses have received more than 11 million in loans totaling $ 788 billion through the Payroll Protection Program.

Small businesses have received more than 11 million in loans totaling $ 788 billion through the Payroll Protection Program.

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The SBA has 90 days to review the forgiveness petition after the lender submits it. For small loans, especially those under $ 100,000, three months is more than enough. But the agency struggled to meet its target on larger loans.

“We have 200 or 300 loans that are over 90 days old; some of them have passed 200 days, ”Berman said. “It’s a tricky conversation where the company applied for a loan, went through all the rigorous follow-up, all the necessary paperwork, and here we are, 200 days later. They say, “Frost, what’s going on?” “

Frost has approved over 32,000 PPP loans worth $ 4.7 billion. Forgiveness applications covering three-quarters of his 2020 origins have been filed with the SBA, Berman said.

As of May 10, the SBA, which ran the PPP with the Treasury Department, reported write-offs of nearly 60% of the 5.2 million loans approved last year. At the same time, he noted that 182,000 loans totaling $ 84.3 billion are still pending. Lenders and trade group representatives said loans of $ 2 million or more made up a significant portion of that total.

Overall, lenders disbursed just under 11.2 million in loans worth $ 788.1 billion, making PPP the largest emergency relief program in American history.

Lending began in April 2020, just over a month after the start of the coronavirus pandemic. It is due to end on May 31, although the SBA will have an additional month to process loans received on time. The forgiveness will take longer due to the millions of loans disbursed in 2021, but the process has not yet begun.

Now, however, the lack of progress in obtaining forgiveness for large-scale PPP loans threatens the bankers’ negative assessment of the program, which they believe has been successful in most other respects.

“In fact, forgiveness may be more important than providing loans,” Berman said. “Any part of the capital that the bank could have created as part of helping companies can disappear if we can’t get them through the process of forgiveness.”

John Madison, a certified public accountant based in Ashland, Virginia, has helped several clients apply for PPPs. “Overall, it was a great program,” Madison said in an interview on Wednesday. “It was a godsend for all these businesses.”

“My only complaint is the lack of communication from the SBA,” added Madison. “You can’t find anyone who can figure out what’s going on.”

According to Madison, four of his clients have filed petitions for forgiveness. Three loans were forgiven without incident. The fourth, worth more than $ 1 million, is still awaiting a decision after seven months.

“We introduced it in October,” Madison said. “Six months passed without a word, then [SBA] requested additional information. Since then, we have waited 30 days. I am sympathetic to the fact that they are inundated with applications, but this is very frustrating. “

The SBA did not respond to requests for comment.

After the series critical reports With a focus on publicly traded companies, well-known restaurant chains and professional sports franchises receiving PPP loans, the SBA and the Treasury announced plans to renegotiate all loans in excess of $ 2 million on April 29, 2020.

Meanwhile, with regard to small dollar loans, the SBA, responding to loud calls from lenders and trade groups, has taken steps to significantly streamline the process. For loans of $ 150,000 or less, borrowers only need to prove that they have spent their loans on approved expenses.

As a result, while forgiveness is under way, even banks that have succeeded in the process are reporting problems with their large dollar loans.

Sunstate Bank in Miami, with $ 521.8 million in assets, has secured a full write-off of 447 of the 464 PPP loans it issued in the first round of the program.

However, out of the remaining 17 loans, 12 are pending confirmation. “This means that we provided the SBA with additional information upon request, and since then they have not told us anything about them,” Sunstate CEO Lloyd DeVo said in an interview Wednesday.

The largest loan – $ 3 million – was provided in September.

“We call them about once a month and ask if there is something we need to provide,” DeVo said. Agency response: “No, we are working on it.”

“I think after the SBA announced its announcement, we could have assumed it would take longer to get the larger loans,” James Ballentine, executive vice president of the American Banking Association, executive vice president, said in an interview on Thursday on Congressional Relations and Political Affairs. “But no one knew for how long, and that the SBA would not have a process to set a timeline for” the pardon.

“That’s all the bankers want to know,” Ballentin added.

Rory Ritrievi, president and chief executive officer of Mid Penn Bancorp, with $ 3.4 billion in assets in Millersburg, Pennsylvania, admitted that “some of the larger loans take longer to go through the forgiveness process.”

Ritrievi said the SBA has made great strides in rectifying the situation.

“We noticed that after providing additional documentation and with additional interaction between the lender and the SBA, these larger loans are fully forgiven,” said Ritrievi. “The SBA indicated that this timetable will continue to improve as new loans and grants are completed and [it] devotes more resources to the forgiveness and verification processes. “

Ballentin also expressed the hope that “as other programs begin to wind down and people are able to breathe, performance should improve.”


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