Are your lending operations prepared to support the new Paycheck Protection Program for small businesses?
The 2020 Corona-Virus Aid, Relief, and Economic Security Act (CARES Act) includes $659 billion in funding for Small Business Administration (SBA) 7(a) loans under the Section 1102 Payment Protection Program (PPP). This is over ten times more funding than the total 2017 volume of SBA 7(a) loans ($25.4bn) – the highest volume processed in the past 5 years. The largest SBA lender processed $347 million in loans in the fourth quarter of 2019 – roughly 250 loans. The three largest banks each processed less than $150 million in loans in the last quarter of 2019.
The process of underwriting and submitting 7(a) loans to the SBA is clerically intensive, requiring multiple forms for each loan along with regular reports of loan status, once originated.
Under the CARES Act borrowers will be eligible for loan forgiveness for qualifying uses of 7(a) funds, including payroll, rent, and utilities. The verification process has yet to be fully implemented by SBA, but will be critical to ensure lender reimbursement.
This combination of unprecedented volumes and disparate capacity across the industry, is expected to create widespread processing challenges.
Focus on forgiveness
The loan application process has proven to be challenging and continued rule changes could further complicate the process. We expect this to continue as borrowers and their lenders submit requests to receive forgiveness on eligible portions of the loans. Lenders must be prepared to:
- Gather and manage supporting documentation from borrowers
- Evaluate borrower payroll, rent, and utility evidence against SBA guidance
- Submit forgiveness requests to SBA
- Track and communicate status to borrowers Support audit processing
We expect the SBA and Treasury to continue to develop and publish new guidance as the program matures and the effectiveness is evaluated against the program goals.
The help you need
We can guide you through the process of structuring and preparing your operations and selectively automate components to allow you to provide world-class service to your customers. We are prepared to provide the following services:
- Conduct rapid review of processes and tools, and outline enhancements to support new PPP requirements
- Update or create operating procedures and training to support expanded processing team
- Develop cloud-based automation to support document intake and auditing
With forgiveness inquiries and requests set to start flowing as early as May 2020, we are prepared to provide rapid support services that recognize the changing landscape of rulemaking and limited implementation capacity.
Our consumer credit experts and process designers will provide you with a sustainable process and the associated documentation to align your business practices with regulatory expectations.
We anticipate that this program will be reviewed by representatives of the Small Business Administration, US Department of Treasury, Office of the Inspector General, and the Government Accountability Office. Audits or inspections from the Office of the Comptroller of the Currency and Federal Reserve Board are also possible.