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The Paycheck Protection Program now moves into its last phase as businesses look to have their debts forgiven, setting up another processing challenge for lenders
With 118,000 Massachusetts small businesses, nonprofits and independent contractors receiving loans through the Paycheck Protection Program, lenders must now work on the forgiveness phase.
Unlike at the PPP’s launch, banks and credit unions will likely not face a rush of applications requiring long hours. But just as the processing phase came with unclear and changing rules, questions remain on the U.S. Small Business Administration’s guidelines about the expenses eligible for forgiveness.
Some lenders have decided to delay accepting applications and await more guidance from the SBA. And with nearly 85 percent of Massachusetts businesses receiving loans less than $150,000, lenders also hope that a proposal in Congress to automatically forgive all of these smaller loans will eliminate much of the work ahead of them.
Despite the uncertainties facing the forgiveness process, some community banks have decided to move ahead.
“We made the decision that as we receive applications, we’re going to process them on a timely basis and get the forgiveness done for people without waiting,” said Peter Rice, the chief credit officer at the Cooperative Bank of Cape Cod. “We think it’s the right thing to do for borrowers without knowing if Congress will take action.”
Safe Harbor a Concern
The SBA began accepting forgiveness applications on Aug. 10, though legislation in June gave business owners more time to use the funds and apply for forgiveness.
Some businesses are anxious to apply and find out whether they will end up having to repay some of the proceeds. Matthew Touma, a managing director and certified public accountant with LGA in Woburn, said many of his clients have found that their banks have not started accepting forgiveness applications.
“People, if they could choose, even if they get another 10 months-plus to apply, would actually like to apply now just to know it’s forgiven, and they don’t have to worry about it anymore.” Touma said.
Some large banks have not started accepting forgiveness applications yet, and some community banks are also waiting for additional guidance from the federal government, including Middlesex Savings Bank and Enterprise Bank, according to their websites.
A key question affecting forgiveness is whether businesses will be eligible for safe harbors, Touma said. The original intent of the PPP was to help employers keep staff on payroll. As economic shutdowns lasted longer than expected and state restrictions made reopening at previous staffing levels difficult or impossible for many businesses, the SBA created safe harbor rules to protect affected businesses affected.
Even if government mandates did not directly affect some businesses, Touma said, the pandemic still presented challenges for remaining at previous staffing levels. He cited one of his clients, a daycare center for dogs, that saw business drop with people working from home.
Process Underway
Customers at Weymouth-based South Shore Bank do not need to wait to apply. The bank has already received forgiveness applications for almost 10 percent of the 1,000 PPP loans it processed, said James Dunphy, South Shore Bank’s president and CEO.
Dunphy said most of the applications received so far have been for businesses that used the entire loan amount for payroll expenses, simplifying the necessary documentation and calculations needed.
At the start of the process, South Shore’s lending team identified several customers who agreed to be the first to apply, giving the bank a chance to work through any issues with its online forgiveness portal.
The portal will let the business owners give access to CPAs or others assisting them with the application, Dunphy said, allowing them to communicate with each other through the portal and smoothing out the process.
The SBA gives lenders 60 days to process the applications, and the bank does not intend to rush.
The bank is hoping for blanket forgiveness down the line.
“We’re preparing as if that won’t happen,” Dunphy said. “If it happens, we’ll be pleasantly surprise, but we’ll be ready if it doesn’t.”
Head Off a Rush
Customers at Fall River-based BankFive will receive an email invitation to apply for forgiveness through its portal, said Bob Collins, BankFive’s chief operating officer. He said the bank plans to send emails to small groups of customers at a time so the applications can be processed in waves.
As questions about an application process arise, employees get together on Zoom calls and use these issues as training opportunities.
So far, invitations have gone out only to businesses with loans over $150,000, Collins said.
Of the bank’s 600 PPP loans, 500 were for less than $150,000. If Congress passes blanket forgiveness, BankFive would then need to work on just 100 loans. This will help the bank, Collins said, and he would also like to see customers avoid the burden of having to collect the necessary documentation and go through the forgiveness calculations.
“There are customers who have PPP loans of $1,000 or $2,000,” Collins said. “We’re hopeful that Congress will revise those regulations.”
Diane McLauglin
At the Cooperative Bank of Cape Cod, Rice said anyone who is ready can apply for forgiveness through its online portal. The bank did about 900 PPP loans and has received 84 forgiveness applications so far.
The COOP has been proactive in preparing customers for forgiveness, Rice said, with email and social media campaigns provided frequently asked questions, as well as online videos to explain the process. He added that most customers have been able to find answers to questions through these tools.
The COOP’s proactive approach to forgiveness also comes from its longstanding role as an SBA preferred lender, Rice said.
“We want to put our best foot forward and the SBA’s best foot forward,” he said.
