Financial Affairs

Bank must help small businesses forgo PPP loans

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If your bank or credit union was one of the many people who have come together to help local small businesses receive Paycheck Protection Program (P3) funding, your job is only half done. The most important phase of the program – loan cancellation – now requires the full attention of your institution. Unfortunately, most financial institutions are not prepared for the communication and operational requirements that will make the difference between the success and failure of this program, both for your organization and for the small businesses that rely on your support.

Much like the PPP loan application process, regulatory ambiguities about how a small business can get a rebate is confusing among borrowers and financial institutions. But rather than this lack of clarity causing your institution to inaction, it offers a great opportunity to forge stronger relationships with the small businesses that rely on you.

By providing proactive support now, when clarification comes from the Small Business Administration (SBA), you and your small business clients will be able to receive maximum forgiveness with the least operational costs and stress. To achieve this goal, communication and collaboration must begin immediately.

According to Jill Castille, President, CEO and Vice President of Citizens Bank of Edmond, “The biggest challenge PPP applicants faced was communication, causing unnecessary anxiety, perceived inaccessibility and duplicate requests. For the forgiveness phase, we have to do better. To do better, use a CRM, develop a communication strategy and identify team leaders for processing, decision-making and communication.

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The Scope of the SBA Paycheck Protection Plan is Huge

The unexpected impact of COVID-19 on small businesses nationwide has prompted the government to act quickly to provide support in the form of two rounds of emergency funding. That support totaled $ 659 billion, including a first round of $ 349 billion (where funds ran out in less than two weeks) and a subsequent round of $ 310 billion at the end of April.

The most unique feature of these government loans was that the loan could be 100% canceled if certain criteria were met. To be eligible for loan cancellation, small businesses must use the funds for salary costs, mortgage interest, rent, and utilities. Additionally, at least 75% of the amount remitted must go to payroll and the small business must maintain or restore employment and compensation to levels that were in place before the pandemic to be eligible for the rebate.

Although the amount of funds approved for small businesses seems huge, the reality is that despite around 70% of small businesses trying to apply for loans, many have had difficulty in the application process and many others have not. been approved. There is some preliminary evidence that less than 20% of small businesses may have received funding.

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The initial loan application process was not smooth

Much has been written about the difficulties faced by financial institutions when trying to help small businesses with their loan application process. Not only was the program approved by the government late on a Friday night, but the program’s requirements were far from clear at a time when nearly every small business was in trouble and needed the funds … quickly.

With all interested parties having a vested interest in seeing loan applications processed as quickly as possible, the process was far from smooth. Large institutions often required additional documents than those required by the government or had other stipulations that made it difficult for small businesses to apply for loans.

Many small financial institutions did not have digital systems to easily process claims or submit them in the manner required by the SBA. Many had a large number of employees working overtime to manually fill out forms, especially when SBA systems crashed at the start of the program. Additionally, several third parties saw it as an opportunity to provide software support to smaller banks that enabled them to digitize their lending processes. Finally, the government also opened the program to second-round FinTech companies, such as PayPal, Square, Intuit, and others.

It’s time to focus on the forgiveness phase

With billions of loans approved and processed in a historically short period of time, small businesses and financial institutions must now focus on the surrender phase of the program. Unfortunately, this part of the program could easily be much more complex than the loan approval program.

To make matters worse, because the loan distribution schedule was so compressed, all of those same small businesses will be knocking on financial institutions at the same time. The P3 program forced small businesses to spend their money in eight weeks, with many not ready to open their doors to the public but still in need of forgiveness.

“With insufficient advice on the SBA’s PPP remittance and with conflicting announcements from Congress and the IRS regarding the tax implications of PPP loans, the banks that participated in the program are about to be hammered home with questions. (and complaints) on the program »States Ron shevlin, director of research at Cornerstone Advisors and principal contributor to Forbes. “Banks need to get involved in automating the forgiveness process and preparing for a customer service attack.”

Time is running out and clarity around the program is still lacking.

Several steps can be taken immediately to help small businesses in the loan forgiveness process. Next Generation Software, a provider of SBA PPP digital loan automation software, offers these guidelines:

  • Provide proactive communication. Because the loan forgiveness process is still unclear, small businesses turn to their financial institution for advice. This is where proactive communication of updates is important. Even if a financial institution is not completely clear on all the requirements, contact any small businesses that you have given loans to and inform them of the status. This proactive process will reduce the pressure on call centers and other areas of your organization that may not have up-to-date information.
  • Give updates in real time. Government information will be communicated and may change without notice. Provide updates as soon as possible once information is received.
  • Use a multi-channel approach. Small business leaders won’t mind “over-communication”. It is a stressful time for small business owners. Use email, text communication, and phone calls to reach affected parties.
  • Help small businesses collect the necessary documents. Most small businesses don’t know much about the next steps required to get a loan forgiveness. Many do not have a formal payroll system, a team of accountants, or even advisers familiar with the P3 loan cancellation process. You are their lifeline. Send them tips for preparing the necessary forms, worksheets, thoughts on where to collect the information that will be needed.
  • Define your review process. Determine your process for helping small businesses in their forgiveness stage. Even if the technology is not yet available, the process needs to be defined. Technology is only the catalyst.
  • Standardize data collection. While small businesses will obtain the necessary data from a variety of sources, you should require these businesses to submit their information in a standardized digital format. This will dramatically speed up the process and provide flexibility if the underlying requirements change.
  • Digitize the process. All components of the process should be digital, with the calculation of the rebate amount, exception handling, status tracking and document management being key to enable ongoing communication with the borrower.
  • Focus on the audit trail. As with any SBA loan transaction, lenders are required to exercise due diligence during the request and forgiveness phase. Make sure that there is adequate documentation and the ability to access historical data for audit purposes.

According to Joe Ganzelli, Sr., Senior Director at Cornerstone Advisors, “Si [financial institutions] Used a Loan Origination System (LOS) to process their PPP request, they should already discuss their provider’s capabilities for processing remittances… LOS.