Banks, Borrowers Turn to Complex Task of PPP Loan Forgiveness


  • Lenders likely to find some parts of loans won't be forgiven
  • Congress continues to work to make changes to Paycheck Protection Program
  • More than $100 billion in PPP funds remains available

Restaurants and other food businesses have been among the most challenged when it comes to qualifying for forgiveness for the Paycheck Protection Program

Lenders and borrowers may well be in the most "daunting" phase yet of the ever-complex Paycheck Protection Program.

While available funds continue to linger and demand for the potentially forgivable loans has mostly slowed to a trickle, businesses and lenders now turn their focus toward meeting numerous requirements for getting the advances forgiven. 

Therein lies many challenges, say commercial lenders and other advisers who note that borrowers are likely to be in for surprises.

"To be honest with you, the forgiveness portion seems to be more complex than the application portion, at least at this point," said Andrea Mosher, senior vice president of lending solutions for Lake Trust Credit Union in Brighton.
As existing rules and guidance stand now, Mosher said banks and other advisers essentially need to work with each individual borrower as they go through the process of applying for forgiveness. For many owners, that creates major challenges, Mosher said.

"Small business owners tend to work; they're not in the everyday minutiae of the finance side, so it stresses them," she said.

To put the amount of work likely to be needed to achieve even just some forgiveness into perspective, Lake Trust Credit Union has handled 225 PPP loans totaling about $13 million, according to Mosher.

Comparatively, Oxford Bank, another fairly small, community bank in northern Oakland County, did 1,300 loans totaling $242 million, President and CEO Dave Lamb said.

The bank has a large hill to climb, he said.

"That is a daunting task. It will take a lot more work to process the forgiveness than it was to originate the loans," Lamb said. "And originating the loans was no slam dunk task. But this is going to be a lot worse from a time spent (perspective). For customers, there will be a lot more hand-holding. It is confusing."

At the same time, lenders have strong incentive to ensure their clients maximize their potential forgiveness. Beyond maintaining a happy base of clients, banks won't want to see these loans remain on their books and will work hard to ensure that doesn't happen, said Michael Tierney, president and CEO of the Community Bankers of Michigan, an East Lansing-based trade group. 

"The bank is not going to turn you down for loan forgiveness. They want that loan forgiveness just as bad as you do," Tierney said, noting that time is of the essence for borrowers who may get turned down on forgiveness. "They're going to do everything they can to try to get you your loan forgiveness, but if they have to decline or (regulators) decline it, the borrower has 30 days to appeal ... They can't wait if they get turned down for forgiveness."

Making changes

The U.S. House on Thursday took action on legislation that would lower to 60 percent the current requirement that 75 percent of a loan be used on payroll. Restaurants and other small businesses have said they want flexibility to spend more on overhead expenses, especially in high-rent areas.

The measure would change documentation requirements for employers who say they've been unable to rehire laid-off employees. Under the program, the amount of loan forgiveness is reduced if companies don't maintain head count and salaries. The bill also clarifies that a borrower doesn't have to start repaying a loan until the SBA determines whether it can be forgiven.

Also, employers would be required to comply with coronavirus safety standards.

The legislation reportedly has the support of the Trump administration. The Senate is expected to take it up next week.

Accountants applauded the governmental measure, as the initial eight-week period and limited ability to spend funds as businesses need now were seen as restrictive.

"They're going to have huge changes because it's going to allow businesses to figure out what they can get forgiven and not have to race to use the money when it's not the most impactful," said James Lopiccolo, a managing member at Lake Orion-based accounting firm Capocore Professional Advisors. "It puts a little more control back into the businesses."

Ultimately, despite the changes Congress is making and the U.S. Small Business Administration continuing to update guidance that should make for an easier time for many businesses, most are still likely to find that they will not achieve full forgiveness, Lopiccolo said.

While acknowledging that it's likely not politically feasible, Lopiccolo's preferred solution would be for the government to simply deem that all loans under $250,000 were taken in good faith and be deemed forgiven.

Decision time

As of May 23 there had been more than 4.4 million total PPP loans approved totaling $511.2 billion, according to the most recent data available from the SBA.

Michigan companies had been the beneficiaries of 113,067 loans totaling more than $15.7 billion. Banks headquartered in-state have punched far above their weight class, at least in the earlier parts of the PPP, as Crain's previously reported.

While demand for the program was red-hot in the early stages, a second tranche of funds of $310 billion has lingered, and as of May 23 some $137 billion remained available, according to the SBA.

Banking sources said rules such as having only eight weeks to use the funds, which appears headed for change, had been keeping away many potential users, particularly seasonal users in resort towns such as Grand Haven, which remains largely shuttered by state mandate.

Despite the copious amounts of bureaucratic red tape, uncertainty and confusion with PPP, accountant Lopiccolo said he's trying to present a handful of simple options to his clients.

Essentially, they should look at the loans as either cheap money loaned at 1 percent over two years, plan to repay the loans to the government, or stick with the law as it was named and continue paying their employees so they don't have to go on unemployment.

"Why give the money to the government when you can give it to help your employees?" he said. "That was really the spirit of the law is to get money into your employee's hands."

— Bloomberg contributed to the report

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Source: Crain's Detroit Business

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