Large Paycheck Protection Program loans remain in limbo as the Small Business Administration takes its time reviewing borrowers’ applications.
Though the SBA has forgiven more than 30% of the 5.1 million PPP loans it approved last year, many lenders who originated loans of $2 million or more are still waiting to hear back from the agency months after their borrowers submitted paperwork.
For bankers, the wait is delaying the payout of origination fees for the loans. And it could cause big headaches for borrowers as they look to finalize their latest financial statements, bankers said.
The “SBA asked for an awful lot of information” from businesses that borrowed large amounts, said Ted Sheppe, executive vice president of commercial banking at the $675 million-asset Axiom Bank in Maitland, Fla.
“The information is supplied, then it just kind of goes dark for three or four months,” Sheppe added. “That has some customers a little spooked. … We just don't have an answer for them. That’s frustrating.”
Lenders have originated more than 29,000 loans of $2 million or more under the PPP, accounting for just 0.4% of total loans. But they make up 16% of the $651 billion in funds approved by the SBA.
Bankers aren’t surprised the SBA is giving large loans extra scrutiny given the controversy during the PPP's earliest days when large businesses and publicly traded companies were approved for funds.
The SBA and Treasury Department, which are administering the program, issued a statement on April 28 pledging to review all loans that exceeded $2 million. The SBA in November
But lenders are frustrated by the radio silence from the SBA and Treasury on the status of the loans or what could be holding forgiveness up.
“We’ve been putting pressure both on the previous administration and the current one to process these applications more quickly,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
At a Midwestern community bank, an executive who asked not to be named said forgiveness for its three biggest PPP loans has been under review for months, including one submitted in August. The SBA sought more information on the types of protective equipment the borrowers bought, while asking for more financial statements that what it typically required.
One borrower submitted more than 100 pages of supporting documents.
“It’s been crickets since,” the executive said. “I’ve spoken with bankers across several other states and they’re experiencing the same thing.”
Atlantic Union Bankshares in Richmond, Va., has also experienced lengthy delays with its biggest loans. The $20 billion-asset company made more than 11,000 PPP loans last year, totaling $1.7 billion.
While the SBA has approved 93% of the forgiveness applications Atlantic Union has submitted, it hasn’t signed off on any large-dollar loans, said Alison Holt-Fuller, the company’s head of product and enterprise first line risk management.
Some of the delays may be tied to situations where a borrower who received a loan of $2 million or more last year is seeking a second PPP loan. But that doesn’t explain delays in cases where borrowers have not applied for second draws.
“We won’t know the reason for the hold or delay on those,” Holt-Fuller said. “We are hearing that most in the industry are having the same experience and understand that the trade associations have been reaching out to the SBA for more clarity around the delays.”
The SBA’s changeover in leadership, with many top officials including incoming Administrator Isabel Guzman, still awaiting confirmation, may also be contributing to the delays, Merski said.
The SBA has not released any information on forgiveness rates for loans of $2 million or more. An agency spokesman declined to provide an update.
Obtaining forgiveness is important for lenders. It would allow them to take the loans off their books, and it triggers the payment of PPP origination fees. Last year, those fees totaled about $5.3 billion.
The delays have the potential to create accounting issues for borrowers, bankers said.
Auditors are likely to require small businesses to record their PPP funds as a liability on the balance sheet, instead of other income, until the SBA forgives the debt.
That could create issues with loan covenants for other loans. For contractors, it could complicate their ability to secure bonding for projects. It could also create valuation issues for owners looking to buy or sell their business.
The SBA approved more than $520 billion in forgiveable PPP loans between April 3 and Aug. 8, when its original lending authority ended. Congress provided $284 billion for a new round of PPP in the stimulas package enacted on Dec. 27, including funds for second loans to borrowers who could demonstrate that their businesses were experiencing ongoing harm from the coronavirus pandemic.
Paul Davis contributed to this report.
