Published in Small Business

SBA simplifies PPP loan forgiveness process

BY Sunday, January 31, 2021 05:00pm

As clients began reaching out in recent weeks to gather documents and apply for forgiveness of their federal Paycheck Protection Program loans from last year, executives at Level One Bank urged them to wait. 

The reason: The U.S. Small Business Administration was planning further guidance for PPP loan forgiveness that would simplify the process for borrowers who got $150,000 or less.

“We told our clients, ‘Why don’t you hold off if you haven’t already applied for forgiveness because it’ll be even easier,’” said Greg Wernette, executive vice president and chief lending officer at Farmington Hills-based Level One Bank, which has $2.5 billion in assets and maintains an office in southeast Grand Rapids.

“The SBA is making it simpler for smaller companies. It’s a lot more straightforward and it doesn’t require as much documentation to get forgiveness,” Wernette said. “Basically, you’re not going to have to round up as much paperwork to get forgiven for last year’s (loans).”

In updated guidance issued Jan. 19, the SBA will allow small businesses that received PPP loans of $150,000 or less last year to fill out a simpler, single-page form — which comes with five pages of instructions — that attests that they complied with all requirements. 

‘Big benefit’

The new stimulus package that allocated $284 billion for a new PPP round that launched in January also included language that required the SBA to create a simpler forgiveness process for loans issued in 2020. The legislation also created a process for new PPP loans issued in 2021.

As of Jan. 24, the SBA had approved 400,580 loans under the new PPP round that includes 13,171 for $1.5 billion for Michigan small businesses.

The simpler form asks borrowers to fill in the amount of their PPP loans, how much was used for payroll costs, and how much they are asking to have forgiven. PPP borrowers must retain their support documentation for four years.

“We feel that it’s going to be a big benefit for our customers,” said Michael Shepherd, head of SBA lending for Fifth Third Bank.

Fifth Third wrote 40,071 PPP loans last year totaling $5.4 billion across its 13-state footprint, according to SBA data. 

More than 40 percent of Fifth Third’s PPP borrowers have applied for loan forgiveness, Shepherd said. More than eight in 10 had received PPP loans of $150,000 or less.

Once a lender reviews a forgiveness application and submits it, the SBA has up to 90 days to make a final decision, Shepherd said. To date, most of the applicants received answers on forgiveness within the 90-day timeframe.

“We’ve had much quicker on some and a little bit longer on others,” Shepherd said. “The overall turn has been very good from the SBA within the timeframe.”

Level One Bank wrote 2,176 PPP loans for about $400 million last year. About 30 percent of those borrowers have already sought and received loan forgiveness from the SBA. Wernette expects a “significant number of borrowers” at Level One to qualify for forgiveness of their PPP loans.

Many of the bank’s clients that got a PPP loan last year are now applying for another loan in 2021, Wernette said. Borrowers who have yet to seek forgiveness for a 2020 loan and waited for the new SBA guidance were able to focus more time “on the important dynamics of keeping their business afloat,” he said.

‘Much easier’

As the SBA administers the new PPP round that Congress authorized in late December, the agency is working to approve loan forgiveness for those PPP borrowers who meet eligibility requirements.

In the first round of the PPP, the SBA approved 5.2 million loans nationwide totaling $525 billion through the end of the program on Aug. 8. In Michigan, more than 128,000 small businesses received a combined $16 billion in PPP loans.

As of three weeks ago, the SBA said that in the three months since opening the forgiveness process, the agency forgave more than 1.1 million PPP loans nationwide totaling more than $100 billion. Through Jan. 12, the SBA received 1.3 million forgiveness applications totaling about $170.5 billion. Of small businesses that received PPP loans up to $50,000 last year, nearly nine out of 10 had been approved for forgiveness, according to the SBA.

A large majority of first round PPP loans fall under the simpler forgiveness criteria and process. More than 87 percent of all PPP loans were for $150,000 or less, while two thirds were for $50,000 or less, according to SBA data. At the time the first round ended on Aug. 8, the average PPP loan was $101,000.

Banks, credit unions and other financial institutions participating in the PPP have been reviewing forgiveness applications even as they process new requests for the second round, which opened last month and runs through March 31.

The simpler forgiveness process lessens the task for lenders, who are simultaneously preparing and reviewing new PPP applications.

Since launching the PPP last spring, the SBA has repeatedly updated or altered rules and guidance, often frustrating lenders, particularly in the early weeks and months of the program. This time, the latest guidance on forgiveness for loans of $150,000 or less was a welcome change for lenders that makes the process easier for them and their clients.

“It’s much easier in that they just have to provide us some information and the signed form. It’s not nearly as complicated and it’s pretty straightforward and easy,” said Steve Piper, chief credit officer at Kalamazoo-based First National Bank of Michigan. “They still should provide us with some of the information to support that, but we don’t have to look at it, which is the biggest and my favorite part of it. We just have to say that they gave us information to support it.”

FNB wrote about 600 PPP loans in the first round in 2020, about 200 of which have since been forgiven by the SBA, Piper said.

More applications coming

The new process has significantly shortened the amount of time it takes to review forgiveness applications before submitting them to the SBA, said John Hopps, commercial credit manager at Grandville-based Grand River Bank.

“It does ease the administrative burden. It also eases the burden on customers,” Hopps said.

Grand River Bank did 370 PPP loans in the first round for about $60 million, and about 60 percent of the loans were for $150,000 or less, he said. About 60 PPP borrowers at Grand River Bank have since received forgiveness from the SBA, and Hopps expects many more will now apply.

“We were waiting for the new form to come out for the $150,000 and under group,” Hopps said. “It’ll be a pretty significant amount that will get forgiven in the next month or so.”

In the first round, Grand Rapids-based Mercantile Bank wrote more than 2,271 PPP loans totaling about $554.3 million. As of Jan, 14, the SBA had forgiven 1,103 the loans to Mercantile clients for $210.2 million, according to a recent presentation on fourth quarter results.

“Based on recent trends, it appears that a vast majority of the remaining PPP loans will be forgiven during the first three quarters of 2021,” CFO Chuck Christmas told brokerage analysts in a Jan. 19 conference call.

However, the bank had yet to receive forgiveness payments from the SBA on PPP loans of $2 million or more, although 70 percent of those borrowers had applied, according to Christmas.

Just 0.5 percent of the PPP loans issued last year were for $2 million to $5 million, but they amounted to 13.7 percent, or $72.1 billion, of the total value, according to the SBA.

EDITOR’S NOTE: This story has been updated from its previous version.

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