Why the SBA withdrew its threat to audit PPP lenders
Although the Small Business Administration canceled about 60% of the nearly $ 793 billion in Paycheck Protection Program loans approved in 2020 and 2021, the process hasn’t always gone smoothly.
The SBA’s relationship with community banks appeared to deteriorate last week after the president of the Independent Community Bankers of America accused the agency of threatening to audit banks that did not adopt the direct forgiveness portal. . the agency unveiled on Aug. 4.
“We and other PPP lenders have received an email from the SBA advising us that in order to avoid lender audits, we are encouraged to go for direct forgiveness,” ICBA President Robert Fisher, who is also chairman and managing director of Tioga State Bank, assets of $ 547.6 million. in Spencer, New York, lawmakers told lawmakers at a virtual House Small Business Committee hearing on Wednesday.
In a copy of the email obtained by American Banker, the SBA said it would “conduct outreach and independent audits on lenders who have not actively communicated to borrowers on the availability of the rebate.” This awareness will mainly focus on lenders who do not participate in direct forgiveness, ”the name of its portal.
“To avoid these lender audits, we encourage you to go for direct forgiveness and maintain an active and aggressive outbound campaign with your PPP borrowers,” the email read.
Fisher was not satisfied with this formulation. “We don’t appreciate the coercive tone of this email,” he said.
PPP forgiveness has been a hot topic for lenders and legislators throughout the program’s 18-month existence. The SBA’s first attempt to handle forgiveness came in May 2020, when it issued the first request for forgiveness. The 11-page request was immediately criticized as being too long and complicated by groups representing PPP lenders and borrowers, many of whom argued for a blanket remission, at least for small loans.
Ultimately, Congress streamlined the forgiveness of PPP loans of $ 150,000 or less in the Dec. 27 Economic Aid Act. Lawmakers authorized a one-page request that asked borrowers to itemize loan proceeds spent on salary expenses and attest to their compliance with the program’s rules and regulations.
The Direct Forgiveness Portal was intended to further streamline the forgiveness process.
According to Fisher, the SBA has also raised concerns that despite efforts to streamline remittance, some lenders may seek to delay remittance of at least part of their PPP portfolios in an attempt to smooth volatility. potential profits in 2022. Fisher rejected this premise. .
“This practice would be unacceptable and would work against community banking service and relationship-based lending,” said Fisher. “I can assure you that no community bank to my knowledge is involved in this. … We all want to get these loans off our books.
After the hearing, Patrick Kelley, the SBA’s associate administrator for access to capital, said the agency would neither require lenders to participate in the direct forgiveness platform nor to audit those who opt out. However, the SBA “will expect every lender to do their part to forgive America’s small businesses in a timely manner,” Kelley said in an emailed statement to American Banker.
Banks with assets of $ 10 billion or less accounted for nearly 80% of the 5,252 lenders that issued PPP loans in 2021, according to the SBA.
The email could be seen as a sign of “how badly the SBA wants to do this thing,” Chris Hurn, founder and CEO of Fountainhead Commercial Capital, said Friday.
“There is a cost saving to the taxpayer if the pardon comes earlier,” Hurn said. “The sooner this is done, the sooner the interest count will stop. “
Consumer Bankers Association President and CEO Richard Hunt did not mention the SBA email in an August 31 letter to House Small Business Committee Chair Nydia Velazquez, DN. Y., and rank minority member Blaine Luetkemeyer, R-Mo., But he argued that borrowers have benefited from the forgiveness portals that lenders have created.
“Some participating banks have developed their own streamlined forgiveness portals to provide a ‘one-stop-shop’ for PPP borrowers,” Hunt wrote. “These lenders have well-established relationships with their clients and follow the same guidelines and forgiveness as banks using the SBA direct portal.”
The American Bankers Association declined to comment.
Tioga State Bank, which opted out of using the SBA’s direct remittance portal, has secured all but five of its 2020 PPP loans surrendered and plans to complete remittance of the entire portfolio by the end. of 2021. “We’ve been working really hard on the rebate,” Fisher said.
Not all institutions have been so proactive. While the SBA said it received more than 700,000 requests through the direct remittance platform between its August 4 debut and September 1, it said 133 lenders have yet to start offering a discount for them. 2021 PPP loans. 267 others obtained a forgiveness of 10% or less.
Besides the direct remittance portal, some lenders have argued that the streamlined remittance process is often slowed down by requests for additional paperwork.
Affinity Federal Credit Union in Basking Ridge, New Jersey, has faced “continuous and repetitive requests for additional documentation for loan cancellation requests under review, regardless of loan size,” Leslie Payne, Assistant vice president of commercial loans of the $ 3.6 billion credit union in assets, said at the hearing last week.
Affinity got about 80% of the $ 96 million in P3 loans it issued, Payne said. On average, Affinity takes about nine days to get a rebate after it submits an application, but that drops to 47 days for loans under review, according to Payne.
“We didn’t necessarily anticipate the level of loans under review,” Payne said. “When we started, they were [flagging] 10% of our loans. … It takes time for our members. It’s stressful. They don’t know why they are being examined [and] we don’t know if it’s random or something.
Fountainhead, who chose to use the SBA’s direct remittance portal, said the agency flagged about 1,500 of the loans it submitted for further review. “It’s unfortunate, but we are facing it,” Hurn said, adding that the reported loans are less than 1% of the total uploaded.
While the SBA has always been the ultimate arbiter of forgiveness, until the launch of its direct portal last month, lenders took care of collecting requests and routing them to the agency. Many, like Tioga State Bank, have created their own portals to organize the workflow.
The SBA says nearly a third of PPP lenders have agreed to use its direct remittance portal, which allows borrowers to submit claims directly to the agency. That execution rate hasn’t stopped some lawmakers from questioning the decision to introduce such an important initiative so late in the process.
“It’s interesting that all of a sudden the SBA wants to get involved in forgiveness lately with portals and so on,” said Rep. Roger Williams, R-Texas. “The private sector does it much better than the government. “
Rep. Jim Hagedorn, R-Minn., Said direct forgiveness portal could represent SBA effort to “conserve territory” after seeing bank-run PPP outperform disaster relief programs such as economic disaster loans and closed site operators. Grants, where the agency acted as a direct lender.
“They see the writing on the wall, that if we turn EIDL and other loans to banks where we can minimize fraud and do better for our customers, they’re going to lose some power,” Hagedorn said.
Velazquez was less appreciative of the banks’ PPP record, especially for reaching smaller applicants.
“Many underserved businesses and smaller businesses have not had access to PPP, even though they have tried their best,” Velazquez said. With its direct forgiveness portal, the SBA does “a great job of educating businesses on what to do” to get forgiveness, Velazquez added.
Likewise, Representative Carolyn Bourdeaux, D-Ga., Called the direct forgiveness portal “an important step towards better access to forgiveness.”
Republicans on the committee focused much of their attention on the recent SBA email.
“It is the heavy hand of the government that I am going to fight tooth and nail,” said Representative Pete Stauber, R-Minn.
“I am always concerned when the government interferes with these relationships that the banks have,” said Representative Claudia Tenney, RN.Y.
“There are many legitimate and prudent reasons why lenders haven’t joined the SBA’s new direct forgiveness portal,” Luetkemeyer said. “I will not sit idle while lenders are punished for working closely with their small business borrowers.”