The application deadline for companies to apply for the Paycheck Protection Program (PPP) is scheduled to end on Friday, August 8, 2020. The Small Business Association (SBA) recently announced that it has partnered with an outside firm to create a secure SaaS platform (the PPP Forgiveness Platform) to accept loan forgiveness decisions, supporting documentation, and requests for forgiveness payments that will be made available to PPP lenders only (no PPP borrowers) on Monday, August 10, 2020.
PPP was created in response to COVID-19, and has been successful despite some confusion and frustration among the many businesses applying for loans. To better understand the program and how banks can successfully service businesses who’ve applied, we sat down with Jack Leach, commercial banking practice leader at Cognizant.
Financial Technology Today (FTT): Thanks for sitting down with us, Jack. What is the PPP and what are the phases?
Jack Leach (JL): Thanks for having me. The PPP is part of the federal government’s CARES Act created in response to the pandemic. The idea behind the program is to provide businesses, with less than 500 employees, with up to two and half months worth of support to keep employees on payroll and off unemployment. The program has been, for the most part, successful. It was recently reported that there have been more than 5 million PPP loans approved for a total of $520 billion with an average loan amount of $103,126. Because approximately $130 billion remains in program funding, the deadline for businesses to apply was extended to Aug. 8, 2020. However, the leftover funding isn’t the only factor that prompted the extension. Some businesses that had not been able to secure funding for a variety of reasons, but are certainly creating economic value, were given extra time to apply. Additionally, there have been some issues with the Small Business Administration’s (SBA) E-Tran platform as well as unclear guidelines, and even several high profile companies that received funding but did not fit the profile of the small businesses that were the intended target. There has also been fraud which is always the case when large sums of money are involved.
As far as the phases of the PPP, they include loan origination, loan forgiveness, and loan servicing. If businesses are able to keep employees on payroll, follow, and meet the guidelines set, they are eligible to have all or a portion of their loans forgiven. On June 5, 2020, The Paycheck Protection Program Flexibility Act of 2020 (PPPFA), was signed into law to give PPP borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness. There will also be cases were business only qualify for partial forgiveness while some businesses will not qualify for forgiveness at all. In these instances, those loans will be termed out of over a longer period similar to a simple interest loan. In total, the forgiveness process is going to be very tedious, and this is where we’ll see banks doing extensive work in determining and making decisions regarding the loan forgiveness. Based on concerns regarding the forgiveness process, a new bill has been presented and is being considered that would provide automatic forgiveness for PPP loans less than $150,000 which would impact approximately 86% of the volume.
FTT: How has administering the PPP affected banks?
JL: The administration of PPP loans has had a definite impact on banks of all sizes, as well as fintechs. Larger banks have really struggled. To get a PPP loan, businesses were guided to go to the financial institutions where they had an existing relationship because their banks had completed all of the KYC, AML, and OFAC reporting requirements. It was also believed that in directing businesses towards larger banks, that loans would be originated more quickly, however, that proved to be incorrect. Seeing this unfold, smaller banks and fintechs have been the stars of this program because they’ve been more flexible and agile.
FTT: What are some strategies banks can use to streamline the process to maintain normal operations?
JL: There are digital platform solutions, that cover the application process from end-to-end, and there are also API and integration solutions available. To help with both the loan origination and forgiveness phases, fintechs such as nCino created short term solutions that could be quickly integrated. These solutions enable PPP lenders to accept and adjudicate PPP loans through a digital portal as well as efficiency decision and process them.
Additionally, it’s important for banks to have digital solutions that fully support operations. Solutions that focus on front, middle, and back office operations help immensely from an efficiency standpoint.
FTT: The adjudication process is going to place a lot of pressure on banks and their customers, how can banks provide exemplary customer service while minimizing negative impacts on the back end?
JL: One of the most important things banks can do is upgrade their solutions. Moving toward digital processes helps to better organize, ingest, and streamline information. This doesn’t necessarily mean eliminating all traditional and manual processes, but digitization is critical as both banks and businesses work to navigate the PPP process and effectively compete in the post-COVID-19 environment. In addition to upgrading, banks must make training a priority. It’s incredibly beneficial for a bank to provide online training resources and reference tools for customers, small businesses, and CPAs regarding the Paycheck Protection Program as the program changes almost daily. For example, Biz2Credit partnered with the AICPA to create a free resource tool that helps CPAs and small businesses gather the information required to create applications for loan forgiveness. With upgraded digital solutions and increased training and resources, customer perspectives are positively impacted, and in the end, this is what matters most.
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