June 8, 2023


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Lingering pain point for PPP lenders: Forgiveness on large loans

As the final cutoff for Paycheck Protection Program lending nears, forgiveness for large-dollar loans continues to be a sticking point for lenders.

Though some bankers say the Small Business Administration has made progress whittling down a backlog of overdue forgiveness applications, others complain about requests that have sat in the queue for months with no word from the agency about when they’ll be resolved.

“With smaller loans, they get them in and get them out. … It’s a really straightforward process,” said Bobby Berman, group executive vice president, research and strategy at the $44 billion-asset Frost Bank, a unit of San Antonio-based Cullen/Frost Bankers. “On the larger ones that require more review, it just seems like they’re a little resource constrained.”

Per program regulations, loans can be forgiven if a borrower proves that the bulk of the money was used to make payroll, pay rent and meet other expenses.

Small businesses have received more than 11 million loans, totaling $788 billion, through the Paycheck Protection Program.

Small businesses have received more than 11 million loans, totaling $788 billion, through the Paycheck Protection Program.

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The SBA has 90 days to review a forgiveness application once a lender submits it. For smaller loans, especially those under $100,000, three months is proving to be more than enough time. But the agency has struggled mightily to hit that time target on larger loans.

“We have 200 or 300 loans that have blown past 90 days; some of them past 200 days,” Berman said. “That’s a tough conversation, when a company has applied for a loan, gone through all the rigor of an extra review, given all the documentation they need and here we are, 200 days later. They’re saying, `Frost, what’s going on?'”

Frost approved more than 32,000 PPP loans for $4.7 billion. Forgiveness applications covering three-fourths of its 2020 originations have been submitted to the SBA, Berman said.

As of May 10, the SBA, which has administered PPP along with the Department of the Treasury, reported forgiving nearly 60{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of the 5.2 million loans approved last year. At the same time, it noted 182,000 loans, totaling $84.3 billion, remain under review. Loans of $2 million or more make up a significant portion of that total, lenders and trade group representatives said.

Overall, lenders have originated just under 11.2 million loans for $788.1 billion, making PPP the largest emergency relief program in American history.

Lending began in April 2020, little more than a month after the onset of the coronavirus pandemic. It is scheduled to end May 31, though the SBA will have an additional month to process loans it receives at the deadline. Forgiveness will stretch on longer due to the millions of loans originated in 2021 that have yet to begin the process.

Now, though, the lack of progress obtaining forgiveness for big-dollar PPP loans threatens to sour bankers’ assessments of a program they believe has been a success in most other aspects.

“The truth of the matter is forgiveness could be more important than lending,” Berman said. “Any of the equity the bank might have built as part of helping companies out could wither away if we can’t guide them through the forgiveness process.”

John Madison, a certified public accountant in Ashland, Virginia, helped several clients file PPP applications. “Overall, it was a great program,” Madison said Wednesday in an interview. “It was a godsend to all these businesses.”

“My only complaint is a lack of communication by the SBA,” Madison added. “Not being able to find anyone who can address what’s going on.”

According to Madison, four of his clients have submitted forgiveness applications. Three loans were forgiven without incident. A fourth, for more than $1 million, still awaits a decision after seven months.

“We submitted it in October,” Madison said. “It went six months with no word, then [SBA] did request some additional information. We’ve been waiting 30 days since then. I’m sympathetic to the fact they’re overwhelmed with applications, but it’s very frustrating.”

The SBA did not respond to requests for comment.

After a spate of critical reports highlighting publicly traded companies, prominent restaurant chains and professional sports franchises receiving PPP loans, the SBA and Treasury announced plans to review all loans in excess of $2 million on April 29, 2020.

Meanwhile, for small-dollar loans, the SBA, responding to loud calls from lenders and trade groups, moved to streamline the process significantly. For loans of $150,000 or less, borrowers are required only to attest that they have spent their loan proceeds on approved expenditures.

The upshot is that while forgiveness is well underway, even banks that have excelled at the process are reporting problems with their large-dollar credits.

The $521.8 million-asset Sunstate Bank in Miami has achieved a full forgiveness on 447 of the 464 PPP loans it originated in the program’s first round.

Of the remaining 17 loans, however, 12 are categorized as pending validation. “That means we have provided the SBA with additional information if requested, and they haven’t told us anything about them since,” Sunstate CEO Lloyd DeVaux said Wednesday in an interview.

The largest, a $3 million credit, was submitted in September.

“We call them every month or so and ask if there is something we need to provide,” DeVaux said. The answer from the agency is “no, we’re working on it.”

“I think we could have figured after SBA made its announcement that the larger loans would take longer,” James Ballentine, executive vice president, congressional relations and political affairs at the American Bankers Association, said Thursday in an interview. “But no one knew how long, and that SBA would not have a process in place to determine a timeline” for forgiveness.

“That’s all bankers want to know,” Ballentine added.

Rory Ritrievi, the president and CEO of the $3.4 billion-asset Mid Penn Bancorp in Millersburg, Pennsylvania, acknowledged that “some larger loans are taking longer to work through the forgiveness process.”

Ritrievi said the SBA has made strides in addressing the situation.

“We have observed that after additional documentation is provided, and with additional lender-SBA interaction, these larger loans are being fully forgiven,” Ritrievi said. “The SBA has indicated this timeline will continue to improve as the origination of new loans and the upstart of the grant programs wrap up, and [it] dedicates more resources to forgiveness and review processes.”

Ballentine, too, said he was hopeful that “as other programs begin to wind down and folks have a chance to breathe, execution should begin to improve.”