The PPP Forgiveness Phase and Why Banks Are Outsourcing

By: First Union


The PPP Forgiveness Phase and Why Banks Are Outsourcing

As many are getting set to submit their forgiveness applications, banks across the nation are trying to figure out how exactly they are going to process what is expected to be millions of PPP forgiveness applications. The SBA has offered some guidance and yet many lenders are complaining that it still isn't enough for them to be able to enter this process seamlessly. Some banks, therefore, rather than wade through numerous applications of this nature are opting instead to sell the loans to other companies.

Afraid of overloading employees, banks are finding that in some cases selling off the PPP loans just seems to make the most sense at this point, as the complexities associated are proving extremely difficult to navigate. Not to mention, they don't know at this point how to deal with those who default on the unforgiven portion of their debt. Many experts are in agreeance with the selling of PPP loans.

Another popular option has been to hire an outside party to handle the bulk of the work. Especially for those banks that did big numbers, a third-party option could save them a ton of time and hassle in the long run. Atlantic Union, for example, approved upwards of 11k PPP loans—all told lending out 1.7 billion. They went ahead and hired an outside company to deal with the forgiveness part of the process as they simply couldn't handle it in-house and still keep up with the day to day business.

In hiring a third party to work on this, Atlantic Union gave that provides access to its PPP portal. They thus have access also to supporting documentation and can compare it to what appeared on the application and make the decision right there. This is one such strategy of dealing with the forgiveness application overload. Other banks simply opted to sell the loans altogether.

For example, The Loan Source recently purchased over 750 million in loans and originations from Northeastern banks. And they are currently looking to buy even more PPP loans from banks who otherwise don't want to risk the exposure and/or simply aren't equipped to handle the process in general. One of The Loan Source's reps recently said that he fully expects dozens of banks to consider selling off their PPP loans in the coming weeks. Banks simply don't know what to do here as we enter the forgiveness phase and they don't necessarily have the time or capacity to figure it out. Their best bet is to find someone familiar with the process willing to buy the loans and thus alleviate the situation.

The other issue is that those banks and lenders who do decide to take on PPP forgiveness themselves are in essence putting employees at risk. The banks, by and large, are not trained for this—no one per se was trained for this. And so, what could theoretically happen is that someone could offer flawed advice and make the situation even worse for the applicant. All in all, forgiveness is turning out to be a major headache for many lenders across the US right now.

As of this past week, the SBA had approved almost 5 million loans, totaling just over 519 billion. Forgiveness extends to money spent on things such as payroll, utilities, rent, mortgages, and other such basic operating costs. To determine how much can be forgiven borrowers will need to submit documentation to back up all expenditures. That means that someone is going to be left to sort through the paperwork—massive amounts of paperwork.

Back in May, the SBA released guidelines for forgiveness along with the 11-page application. Many criticized the complexity of the documents and so Congress at that point intervened, trying to make everything a bit easier for the borrowers. Their changes included allowing more for expenses not directly tied to payroll as well as lengthening the number of time applicants had to spend the money borrowed. The SBA then streamlined the application and came out with a three-page version instead.

So yes, the changes made have simplified the process somewhat—particularly on the borrower's end of things; however, for banks, many of the challenges are just beginning. The backend of the PPP process didn't get any easier, unfortunately, as the SBA demands a high level of scrutiny for all information attained. Even just in terms of what needs to be sent to the SBA and how it gets sent is an issue that many banks can't seem to resolve. Many are even uncertain as to how they are going to know the SBA's decision regarding an application.

Some of the banks who did sell off their loans did so because of the uncertainty and complexity surrounding the forgiveness process. The SBA meanwhile is remaining relatively silent regarding the next steps and the nuts and bolts of decision making and notifications therein. Perhaps this is why an increasing number of banks are now actively calling on the SBA to automatically forgive the smaller PPP loans; this, in the hopes of facilitating the process and clearing some of the applications off of their plates a lot faster than they'd otherwise be able to. A group of Senators proposed a bill Tuesday that would make it so that PPP loans of 150k or less would be forgiven with just a one-page attestation. Numerous banker groups are firmly behind the initiative. Small businesses right now are helping to start the economy back up; offering blanket forgiveness would enable these business owners to focus on the road ahead rather than be mired down in endless paperwork to have their loan forgiven.

First Union Lending is here to help! We've been working with businesses across the country during this trying time. Offering a variety of loan programs, we can help your small company make it through this. Each financing solution is customized for your business—no one size fits all approach with us. Call today and let's get started together!

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