Let’s start with a seemingly off-the-wall question: What’s the Transitive Law in mathematics? Why? Well, contemplate this equation from page 7 of the SBA’s 11-page PPP Loan Forgiveness application:
- Enter the annual salary or hourly wage as of February 15, 2020: ______________. b. Enter the average annual salary or hourly wage between February 15, 2020 and April 26, 2020: ______________. If 2.b. is equal to or greater than 2.a., skip to Step 3. Otherwise, proceed to 2.c. c. Enter the average annual salary or hourly wage as of June 30, 2020: ______________. If 2.c. is equal to or greater than 2.a., the Salary/Hourly Wage Reduction Safe Harbor has been met – enter zero in the column above box 3 for that employee. Otherwise proceed to Step 3.
This is just one example of many. It’s no wonder that bankers are more than a bit concerned about what the loan forgiveness future may hold for their institutions, given the complexities and uncertainties that have haunted this program from the beginning. With roughly 4.4 million PPP loans processed for a total of nearly $515 billion, banks need to prepare for what could be a forgiveness frenzy.
In a May 22 article in Bloomberg, “Millions of PPP loan forgiveness requests are about to rain on banks,” several industry leaders alluded to just a few of what they see as the challenges ahead:
“The document is complex, so it will fall to lenders to help borrowers complete it. I would equate this to just as heavy if not a heavier lift to processing the loans themselves. For most lending businesses, you may be doing this full-time for no revenue.” - Libby Morris, Head of U.S. Operations, Funding Circle Holdings Plc.
In a May 22 article in Bloomberg, “Millions of PPP loan forgiveness requests are about to rain on banks,” several industry leaders alluded to just a few of what they see as the challenges ahead:
“The document is complex, so it will fall to lenders to help borrowers complete it. I would equate this to just as heavy if not a heavier lift to processing the loans themselves. For most lending businesses, you may be doing this full-time for no revenue.” - Libby Morris, Head of U.S. Operations, Funding Circle Holdings Plc.
“Businesses are still looking for clarity on whether employee bonuses and some health insurance and retirement plans count as payroll.” - Joan Vines, a Managing Director at BDO USA LLP
“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.” - Josh Knauer, General Partner, JumpScale
“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.” - Ira Robbins, CEO, Valley National Bancorp
Here is what your PPP loan borrowers are up against; unclear, shifting guidelines and definitions, as well as a daunting, 11-page PPP Loan Forgiveness Application that makes a 1040 return look like a third grade social studies quiz. The SBA also makes it clear in this application that while all borrowers are “eligible,” there is no guarantee that a request will be granted.
Where does this leave lenders? According to Knauer, lenders will have “a massive customer-relations problem with the companies they’re lending to. More time will have to be spent on the phone, more audits are going to have to be done, with a lot of digging into every single line item of expense.” And Robbins predicts that his bank will need to commit as many employees – 500 out of 3,200 – to deal with forgiveness requests as were needed to process the loans.
Forward-thinking institutions are doing just that; thinking forward and taking a proactive approach to the processing of PPP loan forgiveness requests. These banks are marketing advisory services early in the application process with a view to avoiding, as Knauer puts it, “a massive customer relations problem.”
The marketing communication materials offered by BankMarketingCenter.com can help banks get a message out to borrowers that will stem the forgiveness frenzy tide. First of all, it’s essential that institutions continue to guide their PPP borrowers down the road of forgiveness with frequent reminders of the forgiveness guidelines, which are:
- Track all transactions for which PPP funds are used and keep all related receipts
- Keep accurate payroll records so you can show that at least 75% of your loan went to payroll costs. (PS: As of this writing, Congress is considering revising the 75% to 50%. According to Forbes Magazine’s, Good News For Small Businesses: Congress Could Extend PPP Loan Forgiveness Period,” there is enough support in Congress to extend the eight-week period that Paycheck Protection Program loan recipients have to use the money, as well as relaxing the 75 percent payroll requirement.”
- Keep accurate non-payroll covered expenses, such as payment of interest on mortgage, rents on leasing agreements, and payments for utilities.
Secondly, institutions need to get ahead of the forgiveness process confusion with messaging that helps their borrowers complete their applications. That message could center around a webinar, for instance, that reviews the process guidelines and takes borrowers through their forgiveness application. It might also, as in the case with the Illinois Bankers Association, tout a partnership with a third-party “forgiveness solution” provider, as recently announced by the association: “After evaluating a number of solutions, the Illinois Bankers Business Services Board has chosen to partner with Abrigo and their PPP Forgiveness & Administration solution… which manages the full lifecycle of the PPP loan, from loan forgiveness calculations to auto-populating Form 3508.”
The forgiveness process is a complex one, but the program will hopefully provide businesses with the funding they need to stay afloat. Is it all worth it, in the end? Even the SBA seems uncertain. In its Rules and Regulations document, the association offers this assessment: “We anticipate that this rule will result in substantial benefits to small businesses, their employees, and the communities they serve. However, we lack data to estimate the effects of this rule.”