Millions of PPP Loan-Forgiveness Requests Are About to Rain on Banks

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Banks are preparing for a flood of applications for loan forgiveness under the U.S. Paycheck Protection Program, marshaling staff to help borrowers navigate a complicated process that recalls the fraught early days of the Covid-19 small-business relief effort.

Companies that received PPP funding in early April can start to submit forgiveness applications at the end of May. Lenders will have to help them sort through a detailed application document, complete the paperwork and get it to the Small Business Administration for approval. Banks made about 4.3 million PPP loans for a total of more than $500 billion, and the program allows every borrower to request forgiveness.

At Valley National Bancorp, 500 employees out of its 3,200-person workforce were designated to help customers process the loans, and a similar number will probably be needed to deal with forgiveness requests, said Chief Executive Officer Ira Robbins. The Wayne, New Jersey-based firm has issued more than $2.2 billion in PPP loans.

“Hopefully it doesn’t all come at one time and we can stagger it over a period of time, but I do believe there’s going to be a lot of hand-holding associated with it as you walk through it,” Robbins said in an interview.

The SBA released an 11-page document last week listing the criteria small businesses must follow to get their PPP loans forgiven. Among the guidelines are directions on how to calculate payroll costs, which must account for 75% of loan proceeds spent. The document is complex, so it will fall to lenders to help borrowers complete it, said Libby Morris, head of U.S. operations at Funding Circle Holdings Plc, a London-based firm that issued PPP loans.

“I would equate this to just as heavy if not a heavier lift to processing the loans themselves,” Morris said. “You pretty much have to build a new loan funnel and reprocess all of these loans again. For most lending businesses, you may be doing this full-time for no revenue.”

Piermont Bank, which made PPP loans in the greater New York City area, has spent hours deciphering SBA requirements to create a worksheet for borrowers, CEO Wendy Cai-Lee said in an interview. PayPal Holdings Inc., provider of about $1.6 billion in PPP funding, plans to use online tools to streamline the forgiveness process, Doug Bland, senior vice president of global credit, said in an email.

For all the planning by lenders, the rules could still change. Next week, the House is set to vote on a proposal that would relax the 75% payroll requirement and give businesses more time to pay back loans that aren’t forgiven.

Businesses are still looking for clarity on whether employee bonuses and some health insurance and retirement plans count as payroll, said Joan Vines, a managing director at BDO USA LLP, who has been advising borrowers. Confusion was also prevalent during the original loan-approval process, when lenders complained about a lack of guidance from the SBA.

Many businesses may find they fail to meet SBA terms for forgiveness, which will leave banks with loans to service and customer issues to resolve, said Josh Knauer, general partner at advisory firm JumpScale. He estimates that about 50% of PPP loans won’t be forgiven.

“I see going forward that lenders, all types of lenders, are going to have a massive customer-relations problem with the companies they’re lending to,” Knauer said. “More time will have to be spent on the phone, more audits are going to have to be done, and a lot more digging into every single line item of expense.”

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