The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act included a $349 billion loan program called the Paycheck Protection Program (PPP). This stimulus program is designed to help small businesses avoid laying off employees over the next few months and help small businesses with other expenses such as rent, mortgage, and utilities. Yet, the rushing of passing the bill means that banks aren’t fully prepared to create stable processes for accepting and funding the upcoming overload of these loan applications.
So how can banks prepare for offering SBA PPP Loans?
Take note of key dates:
- February 15, 2020 – your business, mortgage, a rental contract, or business loan must have been in effect prior to this date.
- April 3, 2020 – the first date in which small business owners and non-profits can apply for this loan
- April 10, 2020 – the first date in which sole proprietors, independent contractors, and self-employed individuals are eligible to apply for this loan
- June 30, 2020 – the final date to apply for this loan unless funds are exhausted prior to this date.*
- Be sure that small business customers are aware of what documents are needed to apply for this loan.
For example, Zions Bank has a loan application checklist to help its customers obtain a loan through the SBA PPP program. Generally speaking, eligible small businesses must have the following:
- Less than 500 employees and
- Were in operation on February 15, 2020, and
- Had employees for whom the borrower paid salaries and payroll taxes or paid independent contractors as reported on Form 1099-MISC
Creditworthiness is not a consideration for approval for a PPP loan.
- Be sure to give the right relief to your customer
Ask the following questions to your small business owner:
- Do you need funds immediately?
- If yes, they should consider the Emergency Economic Injury Grant. This grant provides $10,000 of funding within three days.
- Do you need funds for payroll?
- If yes, then the PPP loan is their best option. The characteristics of loans issued under PPP will have a maturity of two years. The interest rate for these loans will be 0.5% and require no collateral or personal guarantees and carry a 100% SBA guarantee. The first payment will be deferred for six months, will be eligible for sales on the secondary market, and there are no prepayment penalties.
- How does loan forgiveness work?
- A small business can apply for loan forgiveness by submitting an application through the lending bank with supporting documentation proving the funds were used for eligible expenses. These expenses include payroll costs, interest experience, mortgage/lease payments, and utility payments.
- Digitize banking processes
Banks need to find a business process management platform (BPM) that will allow for online applications to be completed with automated eligibility, loan calculation, disclosures, electronic signatures, audit trails, and document uploads. Additionally, there need to be real-time back-office tracking and approval workflows that are integrated with e-Tran to provide full automation for SBA / PPP loans.
Banks also need to ensure that their communications methods are secure by enabling 2-factor authentication on all sensitive applications and data stores. Banks should also run a cybersecurity audit and network assessment focused on points of entry. Banks should identify where their sensitive data is and map it against their access points both internally and externally.
- Reallocate resources to SBA PPP Loans
Since staffing levels have been disrupted by the COVID 19 pandemic, bankers should give strong thought to reallocating staff to respond to small business requests under the PPP loans. Jim Engel, CEO, and president of Aquesta Bank stated, “We have reallocated people. Our SBA group is still busy doing regular SBA work. In terms of the more immediate crisis part of this, we have allocated some of our branch personnel to help customers with applications and have trained people in E-Tran [SBA’s electronic loan processing] system.” In other words, staff that usually tend to the drive-through window at the bank should be provided with guidance on how they can answer questions, collect documentation, and provide assistance to those inquiring about the PPP loan.
As the SBA PPP loans continue to be rolled out, details may change. Banks need to ensure they are following the latest guidelines and procedures in order to better serve their small business customers. By following this initial checklist, banks can ensure a path to success.