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With another round of the Paycheck Protection Program about to begin, lenders will have to manage the process for new loans while still getting through last year’s forgiveness applications.
But even with hundreds of borrowers still in the forgiveness phase, community banks expect to avoid the chaos that marked the PPP’s rollout last April.
“We’ve been through it before, granted not two aspects at the same time,” said James Quitadamo, senior vice president and chief credit officer at The Cooperative Bank of Cape Cod. “But I think the first round and the second round were a great learning curve, and people just hunkered down and did whatever it takes to help with the clients.”
The legislation passed in December that authorized another round of PPP funding also clarified some concerns borrowers have had with PPP forgiveness, including allowing more loans to go through a simplified forgiveness process, likely easing the burden on both borrowers and banks in the coming months.
With the new round of PPP funding allowing certain small businesses to request a second PPP loan, community banks have already started to hear from small businesses looking for more funds.
“It couldn’t happen soon enough it,” Paul Scully, president and CEO of Ware-based Country Bank, said of the new round of PPP funding. “It would have been nice if it had been able to come together a few months ago, but it’s good whenever it comes together.”
Scully expects some borrowers will be working on forgiveness documents and an application for a new loan at the same time.
The Wait for Forgiveness
Community banks have already seen the PPP forgiveness process, which began in August, go more smoothly compared to the program’s launch in April. Still, a significant number of borrowers have yet to apply for forgiveness.
Because legislation in June gave business owners the option to extend the period covered by the loan from eight to 24 weeks, some business owners would have just reached the end of the coverage period in the fall or winter.
Weymouth-based South Shore Bank began accepting forgiveness applications in August, using an online portal by StreetShares, a Virginia-based financial technology firm.
The bank received requests for nearly 10 percent of roughly 1,000 PPP loans it processed in the first few weeks and has now processed forgiveness applications for about half the loans, said South Shore Bank’s President and CEO James Dunphy. While others have contacted the bank regarding the process, about 150 borrowers have not been in touch yet.
Some borrowers held off applying for forgiveness to see whether Congress would simplify the process, Dunphy said.
The U.S. Small Business Administration and Treasury Department had implemented a simplified application in October for loans less than $50,000, and the COVID aid legislation signed late last month authorized a simplified application for loans under $150,000.
Nearly 85 percent of the PPP loans in Massachusetts were for less than $150,000. Quitadamo said these loans represent a significant number of those remaining for forgiveness at The Cooperative Bank of Cape Cod.
“That is going to make the lives of not only the bankers but more importantly the borrowers much easier,” Quitadamo said.
Simplified rules for forgiveness of low-dollar Paycheck Protection Program loans are expected to ease the process for many Massachusetts banks.
Some Borrowers Hold Off
Some businesses also wanted to see whether Congress would change the tax rules before calculating their forgivable loan amounts, Dunphy said. Businesses originally could not deduct expenses on their tax returns if the borrower received forgiveness on PPP money used to cover those expenses. The most recent legislation allows the tax deduction.
Another reason Dunphy has seen borrowers hold off on forgiveness involves the advances offered through the Economic Injury Disaster Loan program. Before the most recent legislation, a borrower’s forgiveness amount would be reduced by the EIDL advance, usually $10,000 or less, leaving the business owner with a loan to repay. The latest legislation eliminates the requirement to deduct the EIDL advance from the forgiveness amount.
Even as South Shore Bank continues with the forgiveness process, customers have already started calling about the next round of funding. Dunphy said the bank is ready to start processing those loans.
“We’re a little more experienced now and ready to take on whatever comes at us,” he said.
Critical Funding
The Cooperative Bank of Cape Cod, which uses Abrigo’s PPP platform, processed 906 loans and has received forgiveness requests for about 42 percent. The SBA gives banks 60 days to process each forgiveness application before it needs to be submitted to the SBA, though The Coop has tried to complete the applications in 30 days, Quitadamo said.
He credited both the online platform and the bank’s employees for making the forgiveness process go smoothly. When the new round of funding starts, The Coop plans to have a dedicated team continue to work on forgiveness while another group handles the new loan requests, Quitadamo said. As forgiveness winds down, those staff members will move over to the lending side.
Not all businesses will be eligible for a second PPP loan, as Congress authorized loans only to businesses that demonstrated at least a 25 percent revenue loss. Julieann Thurlow, president and CEO of Reading Cooperative Bank, said getting funding to the businesses most in need would be important during this round.
Diane McLauglin
“I think the first round of PPP, every business was trying to figure out due to COVID how they were going to survive, and there are a lot of businesses at this point that have figured out that they can operate pretty well in a bubble, and are continuing to do so,” Thurlow said. “So those businesses definitely need to step aside so that there are hospitality businesses that are still in business when we’re on the other side of this.”
The Coop’s loan portfolio includes businesses in Cape Cod’s hospitality and accommodations industries, and Quitadamo said the next several months would be critical for these businesses.
“I think the timing of this next round of money is critical,” Quitadamo said. “We’re really hoping this can bridge not only our clients but all the local businesses on the Cape till we see the flowers and the hydrangeas again.”
