On May 4th, 2021, the SBA informed lenders and trade organizations that the PPP general fund had been exhausted. After one year and one month, the Program that provided a lifeline for US businesses ran out of funding, and perhaps for the first time, does not appear to be returning soon.
There is little argument PPP was astonishingly successful in carrying out its mission to provide quick access to low-cost capital for struggling businesses to make payroll and pay critical operating expenses. According to SBA data, approximately 10,858,725 PPP loans were approved for a total of more than $782 billion [as of 5/14]. These funds were delivered into the hands of American business owners to weather the pandemic and keep employees on staff.
The success of the Program is due in part to 13 months of constant engagement by 5,471 participating lenders. PPP has existed, and will continue to exist, in a state of constant urgency. As a side effect of a program with finite funding and demand exceeding supply, the perpetual “run” on available funds was exacerbated by the initial exhaustion of funding 10 days after the Program opened in April 2020. The initial round of PPP and the events that followed trained borrowers and lenders to exist in a frenzied state around PPP, including the facets of the Program that are less urgent, such as forgiveness application and review.
Looking Ahead: Years of PPP Action Required
As first-round PPP lenders understand, fund exhaustion does not signal the end of responsibilities under Program guidelines. Lenders now enter a long and arduous two-fold forgiveness process. As 2020 originated loans reach the end of their deferment periods, borrowers must apply for forgiveness imminently or accept conversion into a loan with interest and principal payments over a five-year term. 2021 loan obligations follow closely behind, as loans originated in 2021 are already approaching the end of their covered periods and borrowers are looking, with trademark PPP urgency, to begin the forgiveness process.
Lenders face two to five years of continual engagement with PPP borrowers and SBA examiners. For many, this extends beyond the simple forgiveness process. Borrowers undergoing business transactions require special treatment and expedited forgiveness review to meet escrow requirements. Loans not fully forgiven must be serviced according to SBA 7(a) SOP, and while the SBA has promised additional guidance tailored to the unique characteristics of PPP, this has not yet materialized. Likewise, guidance around collecting the guarantee for PPP loans in default is still forthcoming. Perhaps the most involved challenge for lenders will be interacting with SBA on loan reviews, which have proven to be extremely detailed with varying degrees of consistency.
As origination efforts wind down, lenders must consider the technology, human capital, and legal capacity required to meet full-time PPP obligations over the next two to five years. While some hold hope for simplified SBA forgiveness measures, future action does not alleviate lender’s obligations today. For most PPP lenders, loan servicing is only beginning as 2020 borrowers approach the end of their deferment period in July and August 2021. Further, SBA has exemplified their exhaustive examination process, selecting 3508S forms of all sizes for detail review with no apparent de minimis threshold for exceptions.
Lender Solution: PPP Servicing Partners
Among the largest non-bank PPP servicer in the country, ACAP manages [$7.8 billion] in PPP loans. Whether through a portfolio sale or outsourced servicing, lenders who partner with ACAP ensure their customers have continuous access to full-time PPP experts who have been deeply involved in origination, forgiveness, and servicing of PPP loans since the inception of the Program. Beyond relief from PPP obligations, a portfolio sale enables lenders to recognize gains at the close rather than over the life of the five-year loans.