Lenders now have more clarity in advance of the Paycheck Protection Program's reopening.
The Small Business Administration released new guidance for PPP late Wednesday, putting considerable emphasis on helping smaller lenders and borrowers. The new version of the program, which received $285 billion in funds from the most recent stimulus package for new and existing PPP borrowers, is expected to begin next week.
The SBA, which is administering the program with the Treasury Department, will grant community development financial institutions and minority depository institutions
A big reason for the guidance is to help "ensure increased access to PPP for minority, underserved, veteran, and women-owned business concerns," the agency said.
An interim final rule issued by the SBA
The program sets aside $15 billion for lenders with less than $1 billion of assets and another $15 billion for those with less than $10 billion of assets.
The SBA also included an optional demographic reporting section on the borrower application, noting that it wants lenders to encourage borrowers to fill it out to improve “efforts to reach underserved, minority-owned, veteran-owned and women-owned businesses.”
PPP was the most prominent of the relief programs included in the original stimulus package enacted to counter the coronavirus pandemic and the wave of shutdowns, imposed by state and local governments, that followed. The program offered forgivable loans up to $10 million to businesses with fewer than 300 employees impacted by the pandemic-related recession.
PPP gave the economy a much-needed boost, as SBA approved 5.2 million loans for $525 billion from the start of April to Aug. 8, but the program was dogged by funding issues, persistent problems with the agency’s E-Tran loan management system and repeated mid-course rule changes. Since the original program's debut nine months ago, the SBA has issued 23 interim final rules to provide clarity and address lender concerns.
Bankers had been bracing for the new guidance, which Congress required the SBA to produce within 10 days after the stimulus package became law.
While the guidance contains numerous incentives for smaller lenders, many of the biggest participants in the previous iteration of the PPP are also eager to jump back in.
Customers Bancorp in Wyomissing, Pa., which booked more than 102,000 loans before the program shut down in August, will make new loans and offer second draws to borrowers still struggling with the fallout from the pandemic.
The $19 billion-asset company also plans to introduce a service for banks that feel obligated to offer loans but want an arm's-length distance from a program many found tough to navigate.
Management teams and front-line employees at some lenders “really didn’t want to participate in another round because it’s been the bane of their existence the past nine months,” said Sam Sidhu, Customers’ chief operating officer.
“A lot of banks were concerned about the reputational risk of not participating in the new round," Sidhu said. “We’re offering them an elegant solution.”
Customers began onboarding clients, including a $50 billion-asset bank, before the SBA’s guidelines came out, said David Patti, the company’s director of communications and marketing.
“We’re essentially putting together a white-label program where we will handle end-to-end PPP processing, funding and servicing, including forgiveness,” Sidhu said.
At least one other institution, Fountainhead Commercial Capital, a nonbank SBA lender in Lake Mary, Fla., said it planned to offer a white-label PPP service.
“We’ll be somebody to whom other lenders can refer clients,” founder and CEO Chris Hurn said. “A lot of institutions, I expect, have PPP fatigue.”
PPP's increased complexity is a big reason some lenders are backing off, said John Asbury, CEO of the $19.8 billion-asset Atlantic Union Bankshares in Richmond, Va.
While Atlantic Union — which made more than 11,000 Paycheck loans totaling $1.7 billion during the first phase — will keep participating, involvement in the latest iteration of PPP will likely be “harder, not easier,” Asbury said.
The fact loans are available to both new and existing borrowers will complicate the process because “it sets up two different applications, two different workflows with differing requirements,” Asbury said.
Furthermore, “the mere fact there’s a simplified application process for loans under $150,000 … while a good thing — it looks like a third work stream,” Asbury said. He said Atlantic Union will handle upfront lending but will outsource some supporting roles.
“We know how important this is and we will deliver,” Asbury said.
Likewise, Flushing Financial in Uniondale, N.Y., aims to amp up its involvement in the new version of the program. The $7.1 billion-asset company made more than 400 loans the first time around.
“We do intend to be active, probably more active than we were in the first round,” said Flushing CEO John Buran.
Customers plans to tailor its white-label service to accommodate other lenders’ needs.
“If they want us to fund the loan and buy it back from us, that’s an option,” Sidhu said. “If they want to fund the loan, but have us handle forgiveness and servicing, that’s also an option. We’re flexible. The key is helping banks help their customers.”
Buran said he was “optimistic” the program's latest round would be smoother than the first, which was dogged by course corrections, funding issues and technical difficulties.
“I remember during the first go-around, it took a lot of time to just pick apart what the program was all about,” Buran said. “Given the fact we’ve had more experience and the SBA has had more experience, this should go better.”
