Bankers ask SBA for answers on big PPP loan forgiveness
Large Paycheck Protection Program loans remain in limbo as the Small Business Administration takes its time reviewing borrower applications.
Although the SBA has canceled more than 30% of the 5.1 million PPP loans it approved last year, many lenders who have made loans of $ 2 million or more are still awaiting a response from the SBA. agency months after their borrowers submit documents.
For bankers, waiting delays payment of loan origination fees. And it could cause borrowers a big headache as they seek to finalize their latest financial statements, the bankers said.
The “SBA has asked a lot of information” from companies that have borrowed large amounts, said Ted Sheppe, executive vice president of commercial banking services at Axiom Bank, with $ 675 million in assets in Maitland, Fla. .
“The information comes in and then it kind of darkens for three or four months,” Sheppe added. “It scared some customers a bit. … We just don’t have an answer for them. It’s frustrating.
Lenders have made over 29,000 P3 loans of $ 2 million or more, which is only 0.4% of total loans. But they represent 16% of the $ 651 billion in funds approved by the SBA.
Bankers are not surprised that the SBA is granting additional scrutiny to large loans given the controversy in the early days of the PPP when large corporations and publicly traded companies were approved for funds.
The SBA and the Treasury Department, which administer the program, issued a statement on April 28 committing to review all loans in excess of $ 2 million. The SBA in November unveiled a nine-page questionnaire for PPP borrowers who have taken on such large loans.
But lenders are frustrated by the SBA and Treasury’s radio silence on the status of loans or what might delay remittance.
“We lobbied both the previous and the current administration to process these requests more quickly,” said Paul Merski, group executive vice president for congressional relations and strategy at Independent Community Bankers. of America.
At a Midwestern community bank, an executive who asked not to be named said the cancellation of his three biggest P3 loans had been under consideration for months, including one submitted in August. The SBA requested more information on the types of protective equipment purchased by borrowers, while also requesting more financial statements than it typically needed.
A borrower submitted more than 100 pages of supporting documents.
“They’ve been crickets ever since,” the executive said. “I have spoken with bankers in several other states and they are going through the same thing.”
Atlantic Union Bankshares in Richmond, Virginia, also experienced long delays with its largest loans. The company with $ 20 billion in assets made more than 11,000 PPP loans last year, for a total of $ 1.7 billion.
Although the SBA approved 93% of the rebate requests submitted by Atlantic Union, it did not sign any large loans, said Alison Holt-Fuller, head of frontline risk management for products and services. company businesses.
Some of the delays may be related to situations where a borrower who received a loan of $ 2 million or more last year applies for a second PPP loan. But that does not explain the delays in cases where borrowers have not requested a second drawdown.
“We won’t know the reason for the suspension or delay of these,” Holt-Fuller said. “We hear that most members of the industry have the same experience and understand that trade associations have contacted the SBA for clarity on the delays.”
The change in leadership of the SBA, with many senior officials including new administrator Isabel Guzman, still awaiting confirmation, could also contribute to the delays, Merski said.
The SBA has not released any information on forgiveness rates for loans of $ 2 million or more. A spokesperson for the agency declined to provide an update.
Obtaining forgiveness is important for lenders. This would allow them to take the loans off their books and this triggers the payment of PPP set-up fees. Last year, these fees totaled approximately $ 5.3 billion.
Delays have the potential to create accounting problems for borrowers, bankers said.
Auditors are likely to require small businesses to record their PPP funds as a liability on the balance sheet, instead of other income, until the SBA cancels the debt.
This could create problems with the covenants of other loans. For entrepreneurs, this could complicate their ability to secure bonding for projects. It could also create valuation issues for owners looking to buy or sell their business.
The SBA approved more than $ 520 billion in PPP loans recoverable between April 3 and August 8, when its initial loan authorization ended. Congress provided $ 284 billion for a new round of PPP in the stimulus package adopted on December 27, including funds for second loans to borrowers who could show their businesses were suffering the continued damage from the coronavirus pandemic.
Paul Davis contributed to this report.