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Preparing for the PPP forgiveness wave

Sep 28, 2020 / Consumer Banking

The Paycheck Protection Program (PPP) has been a lifeline for millions of cash-strapped small businesses impacted by the COVID-19 crisis. But now, lenders have another tsunami looming over the horizon: PPP forgiveness.

The Small Business Administration’s instructions for PPP forgiveness puts the onus on the borrower to calculate how much of their loan can be forgiven, based on their payroll costs over an eight-week or 24-week period beginning on the date they received PPP funds from their lender.

As small business owners begin the PPP forgiveness process and add the burden of proving their eligibility to ongoing concerns, financial institutions have an opportunity to step in and help their customers navigate this complicated process.

To support these customers, lenders must be ready to help their borrowers gather all necessary documentation and guide them through the forgiveness application process—all while the majority of bank employees and their customers are still operating remotely. Here are some ways to prepare for the surge:

Open lines of communication – anywhere, at any time, on any device  

As the lender, you will be responsible for approving your borrowers’ forgiveness applications. To do so, you will need to obtain documentation from those businesses demonstrating how they used their PPP funds in the weeks following disbursement.

Begin communicating with your borrowers during the eligibility period and urge them to keep accurate records of how they are spending the funds so they don’t have to scramble at the last minute. You’ll also want to ensure that you have a user-friendly online interface for entering information and digitally uploading documents when the time comes, an option that will be especially critical during stay-at-home mandates.

Borrowers should be prepared to provide payroll reports (ideally from their payroll providers), along with bills and cancelled checks for rent, mortgage interest, utilities and other qualified expenses. Borrowers should also consider keeping PPP funds in a separate, designated account for ease of tracking.

Stay abreast of the latest guidance

The Treasury and SBA rolled out the PPP very quickly – within days of passage of the CARES Act by Congress. It was inevitable that some details of the program would change after launch, and it is important for you and your borrowers to stay up to date with the latest guidance.

The SBA maintains a PPP FAQ page, which is updated with new information and answers to questions as they become available. In late June, the agency clarified maturity dates of PPP loans: “If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years.”

This is just one example of a change that could have a major impact on borrowers and lenders, and why it’s important to be proactive about communicating them to your customers.

Let technology do the heavy lifting

Technology is the key to implementing smooth and efficient processes for managing the coming onslaught of PPP forgiveness requests. Using available end-to-end solutions, borrowers can enter all headcount and salary information, as well as payroll and non-payroll costs, and use the identical workflow as the original PPP loan, pulling in all loan data without any rekeying.

Such solutions can provide other benefits as well, such as:

  • Integrating with the SBA’s new PPP Forgiveness API to allow users to submit forgiveness applications, supporting documentation and view the status of their forgiveness application without having to log-in to another system;
  • Providing helpful worksheets that incorporate the latest guidance for calculating the borrower’s forgiveness amount; and
  • Booking all changes, including the amount of forgiveness and remaining SBA loan balance, to your core.

Financial institutions continue to have a great opportunity to serve as a lifeline for small businesses. According to a recent survey by Small Business Majority, nearly a third of small business owners say they will not make it the next three months without additional funding, and another 17 percent say they would not make it six months.

Bottom line – if you prepare adequately for the coming PPP forgiveness wave and serve small businesses efficiently and with empathy, the market will take notice and you can surf that wave right into shore.

Rich Estock is senior manager, professional services, at nCino.

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