By Ray Birch
TREVOSE, Penn.–Credit unions need to start ramping up with people and systems as they prepare for the forgiveness round of the Paycheck Protection Program, according to one CUSO.
The personnel challenge that lies ahead has to do with the fact when the PPP loan forgiveness applications begin arriving credit unions will be back to “doing their day jobs,” explained Mark Ritter, CEO of Member Business Financial Services (MBFS).
“Remember, when the initial PPP craziness was going on there was no other business really happening,” said Ritter, whose CUSO works with CUs across the nation on business lending. “Everything was shut down. Our big concern is that as business returns to normal in the second half of the year, when we're busy with our day jobs we’re also dealing with this with forgiveness…You're really going to have to be doing two things with the same number of people. Plus, all lending business is coming back and will continue to do so, which will tie up your lending team.”
Congress and the SBA have made a number of changes to the forgiveness aspect of the Paycheck Protection Program since its initial launch. That includes a new EZ application for forgiveness of PPP loans, as well as a new 24-week covered period created by the Paycheck Protection Flexibility Act, an increase from the original eight weeks. The bill also reduced the proportion of proceeds that must be spent on payroll costs to 60% from 75%, created a safe harbor for businesses that have been unable to return to the level of business activity they had before the COVID-19 pandemic due to compliance with health and safety guidelines for slowing the spread of the virus.
The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee over the 24-week maximum for full loan forgiveness at $46,154 per individual.
Start Preparing
Ritter emphasized credit unions need to start preparing now for the pending increase in workload.
“Credit unions now have to make sure that they're investing in systems to handle this forgiveness work—automate this as much as possible—and then there going to have to bring in additional people to help.”
Hiring more staff to handle the task shouldn’t be difficult, asserted Ritter.
“It’s a lot different than it was in February,” suggested Ritter. “Back then, with unemployment being so low, it was difficult to find good people to hire. But now so many people have lost their jobs there are plenty of good candidates to hire. We’re hiring more people now to get ready for this forgiveness period.”
Member Business Financial Services works with 65 credit unions across the country, 30 of which participated in the PPP for a total of 2,700 loans for $147 million.
“To put that in perspective, it doubled the number of loans in our entire portfolio,” said Ritter. “It didn't double the dollar amount, but it shows the amount of work that is coming.”
Challenges Remain
Again, with the forgiveness period now spread over a longer period, it will be more manageable for CUs, said Ritter. But it will still
Mark Ritter
present challenges.
“As I said, the economy is coming back and we will have all of our other work to do,” he said. “Those people the credit union pulled from the call center or front lines to assist with PPP, they will be doing other things now.”
Turning back to hiring, Ritter said what will also make that job easier for credit unions is PPP “experts” are not required.
“The good thing is there are no PPP experts in the industry,” noted Ritter. “This is all new so everyone is at the same experience level. What we are doing here is trying to find people with some lending experience or some accounting experience, and they don’t even have to have commercial lending experience. For example, you don’t have to go out and look for an experienced commercial lending underwriter. If you have some basic financial experience, we can get you ramped up on this pretty quickly.”
The Good News
For several reasons Ritter said he is confident credit unions will manage through this first-ever task, one being they will have time to prepare, unlike the early days of PPP when credit unions were given literally hours to get ready to deliver on a brand new program that was changing even as it was being put in place.
“The good news is the political winds and the regulatory agencies are all wanting to make this as easy as possible,” said Ritter. “Everybody's on the same page. It's really going to be more about did the business spend the money in a reasonable manner and can you show that.”
Work Remains
Ritter said there is one more thing credit unions must keep in mind.
“We're going to be doing a lot of work to get rid of loans on the books,” he said. “Credit unions were paid a fee to do this and there's no more fee income for all this. So, you will have to hire and invest in systems, but no more money is coming in from PPP. We will all have to be mindful of that.”