NEW YORK—Many of the nation’s financial institutions have dealt with a flood of Paycheck Protection Program (PPP) loan applications. Now, they must brace for a new flood of applications, this time from the same businesses seeking loan forgiveness.
Companies that received PPP funding in early April can start to submit forgiveness applications at the end of May, meaning lenders will have to help them sort through a detailed application document, complete the paperwork and get it to the Small Business Administration for approval, noted Bloomberg.
Financial institutions to date have made approximately 4.3 million PPP loans for a total of more than $500 billion, and the program allows every borrower to request forgiveness.
Bloomberg reported that at Valley National Bancorp, for example, 500 employees out of its 3,200-person workforce were designated to help customers process the loans, and a similar number will probably be needed to deal with forgiveness requests. The Wayne, N.J.-based firm has issued more than $2.2 billion in PPP loans.
“Hopefully, it doesn’t all come at one time and we can stagger it over a period of time, but I do believe there’s going to be a lot of hand-holding associated with it as you walk through it,” CEO Ira Robbins told Bloomberg in an interview.
The Small Business Administration, which is administering the PPP program, has released an 11-page document that outlines the criteria small businesses must follow to get their PPP loans forgiven. Among the guidelines are directions on how to calculate payroll costs, which must account for 75% of loan proceeds spent.
‘Complex’ Document
“The document is complex, so it will fall to lenders to help borrowers complete it, said Libby Morris, head of U.S. operations at Funding Circle Holdings Plc, a London-based firm that issued PPP loans,” Bloomberg reported. “I would equate this to just as heavy if not a heavier lift to processing the loans themselves. You pretty much have to build a new loan funnel and reprocess all of these loans again. For most lending businesses, you may be doing this full-time for no revenue.”
But for all the planning by lenders, the rules could still change, Bloomberg cautioned. This week, the House is set to vote on a proposal that would relax the 75% payroll requirement and give businesses more time to pay back loans that aren’t forgiven.
Bloomberg further noted many businesses may find they fail to meet SBA terms for forgiveness, which will leave financial institutions with loans to service and customer issues to resolve, Josh Knauer, general partner at advisory firm JumpScale, told the news service. Knauer told Bloomberg he estimates that about 50% of PPP loans won’t be forgiven.