Why banks are putting PPP forgiveness on the back burner

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The Paycheck Protection Program's forgiveness portal has debuted, leaving bankers and their borrowers with a big decision.

Those who participated in the $659 billion program must determine if they are ready right now to navigate the complex system for having loans forgiven, or if it makes sense to wait and see if Congress intervenes and simplifies the process. That decision was complicated over the weekend when talks about a new round of stimulus collapsed, casting doubt on when — or if — PPP will get an overhaul.

A number of banks, including JPMorgan Chase, the program's biggest participant with $29.2 billion in PPP originations, plan to hold off on processing applications. The $3.2 trillion-asset banking giant will start the forgiveness process next month, said Kimberly Hooks, a vice president at Chase Business Banking.

JPMorgan Chase is backing a push for automatic forgiveness “as it would help thousands of small business owners get back on their feet,” Hooks added.

Holtmeyer & Monson in Memphis, Tenn., is taking a similar wait-and-see approach with the 12,000 PPP loans it is servicing for 450 banks.

“We had hoped today to actively start taking applications, but we made the decision to hold off,” said Arne Monson, the firm’s president and a co-founder. “We’re hoping like hell we get automatic forgiveness for loans of $150,000 and below, and maybe a streamlined [process] for those up to $2 million.”

An SBA spokeswoman confirmed Monday that the agency's platform began accepting forgiveness applications on schedule, though she did not provide any statistics on opening-day activity.

The SBA stopped accepting applications for new Paycheck Protection loans on Saturday, after Congress failed to extend the program’s operating authority. Lawmakers are considering a number of proposals for a revived PPP, including increased funding and letting the hardest-hit small businesses obtain a second loan.

Lenders' willingness to procrastinate, even if it means delaying resolution of billions of dollars in loans, comes as little surprise to many industry observers.

The SBA approved about 5.2 million PPP loans for more than $525 billion before the portal's closure. The program offers low-interest loans to small businesses impacted by the coronavirus pandemic. Funds spent on basic operating expenses are eligible for forgiveness, making the program even more attractive to struggling entrepreneurs, but the process has been rocky, characterized by delays and unclear guidance.

The forgiveness process has been stressful for borrowers and lenders.

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The SBA did not release a forgiveness application until mid-May, nearly six weeks after it began approving loans. A month later, following criticism that the original 11-page application was too long and complex, the agency released a streamlined form for self-employed borrowers and those that did not reduce employees’ wages by more than 25%.

Before July 23, when it released news of the forgiveness platform, the SBA had never indicated where lenders could submit their applications.

Confusion surrounding the process prompted bankers' groups to lobby for blanket or automatic forgiveness for smaller loans. Lawmakers are considering several bills to that effect.

At the same time, a growing number of lenders have opted to bypass the issue by selling their PPP portfolios.

Others, like Holtmeyer & Monson and the $19.8 billion-asset Atlantic Union Bankshares in Richmond, Va., opted to largely outsource the forgiveness process. Monson said his firm turned to a team of certified public accountants in Boston for help answering clients’ questions; it contracted with Summit Technology Consulting Group in Mechanicsburg, Pa., to package applications for submission.

The arrangement “offers our clients a Cadillac solution,” Monson said.

Not every bank is waiting for Congress to act on forgiveness.

The $2.2 billion-asset First Choice Bancorp in San Diego opened its online forgiveness portal to borrowers on July 2 and plans to begin uploading applications to SBA “in the near future,” said Lorraine Lee, its chief strategy officer.

First Choice, which approved nearly 1900 loans totaling $400 million, is “definitely submitting forgiveness applications right away,” President and CEO Robert Franko added. “We want to provide peace of mind to our clients who have their information ready to submit.”

For another community bank, the $1.7 billion-asset Greene County Bancorp in Catskill, N.Y., there are no one-size-fits-all forgiveness solutions. The company is ready to split the difference between submitting and holding on to its Paycheck Protection loans.

Greene County, which made more than 1,260 PPP loans for $100 million, believes many of those deals are ready for forgiveness right away. In some cases, however, “it may make more sense for some of our clients to wait for further announcements,” said Sean DuBois, vice president commercial lending and business development.