By Ray Birch
TREVOSE, Penn.—Credit unions should expect the new round of Paycheck Protection Program (PPP) loans to be a “less hectic” undertaking, according to one expert, who is also cautioning that staffing could be an issue this time around.
While the Small Business Administration’s systems should not be an issue in the newest round of PPP loans, as they were early on in round one, Mark Ritter says that despite all of the turmoil in April last year as lenders struggled with a new and quickly changing process, one advantage they had was the country was shut down—as was a lot of lending activity initially.
“Last year the mortgage business was booming for everybody, but indirect loans, credit card spending and business loans basically evaporated,” explained Ritter, CEO of Member Business Financial Services (MBFS). “PPP loans were a very nice replacement for business that wasn’t there. Credit unions were able to keep staff busy with PPP from other lending departments that were slow.”
For at least the first few days of the new round of the forgivable loan program, the SBA is only accepting applications processed and submitted by community financial institutions. Monday and Tuesday, applications are limited to small businesses that did not receive PPP loans in 2020. Those applying for a second loan can begin doing so on Wednesday — but only from community financial institutions.
But with the economy picking back up and business for many lending areas rebounding, Ritter is worried credit unions will not have sufficient staff to service demand for the $285 billion available in this latest round of PPP.
“We are very concerned about the workloads,” said Ritter, whose business lending CUSO serviced 35 CUs during the initial round of PPP. “Since PPP ended last year, we've had record lending volume among the credit unions we support. All facets of lending are really running on all cylinders now, and branches are open. There's not a lot of extra capacity this time.”
The Good News
But there is good news, said Ritter, explaining he expects demands on lenders to be lighter with the new found of funding.
“I see the new workload, from what we read from the legislation, is going to be a small fraction of what we experienced last round,” said Ritter. “And here is a key number—$150,000.”
The “$150,000” refers to language in the newest stimulus legislation that states that for loans under that amount the onus is on the borrower to keep much of the documentation to validate the loan request.
“The first time around we were collecting financials and healthcare statements and retirement statements for every loan,” Ritter said. “That was a lot of heavy lifting we won’t have to do this time. Ninety-four percent of the PPP loans our credit unions made last year were under $150,000—this will help us turn around loans faster.”
Avoiding the ‘Crush’
What credit unions may also avoid, this time, is the “crush” of PPP applications borrowers sent to lenders.
“It was such an uncertain time last Spring,” said Ritter. “The economy had shut down, people had no idea what was going to happen, when they might be able to reopen, and there was no vaccine.”
That led borrowers to “shotgun” PPP applications to numerous lenders hoping one would come through, Ritter said.
“Things are much less uncertain now,” said Ritter. “That uncertainty last time led some borrowers to send out 10 to 15 PPP applications to anybody they could get them to. You were processing a lot of loans and weeding through a lot of loans. We received applications from people from all over the country. Now, we think this time it's going to be a little bit more of an orderly process—not a chaotic crush.”
Mark Ritter
Ritter believes borrowers who were approved for a PPP loan from their credit union during the first round will return to the same financial institution if they need another helping hand.
“Also, it will be 10 times easier to process loans for borrowers who are coming back for another PPP loan,” added Ritter.
The ‘Best Strategy’
Ritter believes many credit unions in 2021 will focus first on the borrowers to whom they made PPP loans in 2020.
“That is probably the best strategy,” he said. “I don’t think you will see credit unions reaching out to the community and inviting everyone to get a PPP loan. I think lenders are feeling a little fatigue from these loans.”
What will also limit requests in the 2021 round of PPP loans is a requirement that borrowers demonstrate they have lost income.
“To qualify for this round, you have to show a drop in sales,” said Ritter. “There were a lot of businesses, many of them large, that in good faith last year took out a PPP loan and then had blockbuster years. Those instances are going away and we're going to be able to focus a little more on the people who truly need help.”
A ’Herculean Effort’
MBFS processed $170 million in PPP loans for 35 credit unions last year. This year, Congress is allowing PPP funds to be used for a wider array of expenses—there is still a 60% requirement on salary expenditures to be fully forgiven but the other 40% can be used on a wider variety of expenditures, Ritter explained.
“It was really a Herculean effort,” said Ritter about managing through PPP in 2020. “We think the units are going to be very similar this time around, but we anticipate the dollar amount of each loan will be significantly lower. One reason is the large loans were capped at $10 million last time, now they are capped at $2 million.”