COVID-19 and Operationalizing the SBA's Paycheck Protection Program: Technology Providers to the Rescue
Loan application submissions under the SBA's Paycheck Protection Program (part of the US CARES Act) started slowly as lenders waited for clarifications from the SBA on details such as loan forgiveness, calculating eligible payroll, government guarantees, and payment schedules for loans not eligible for forgiveness. Several articles also criticized lenders for prioritizing existing bank customers, with Senator Marco Rubio, R-Fla, posting a video to Twitter calling out banks for their “crazy restrictions” and saying, “Please don’t be a bunch of jerks, OK? When you needed the country to help you, they did. Now, the country needs you to help them, and we’re paying you to do it. And it’s the government’s money. It’s the taxpayers’ money. So let’s all do our part, please.”
But banks aren’t being jerks. For PPP loans, they must abide by the usual Bank Secrecy Act (BSA) and Financial Crimes Enforcement Network (FinCEN) requirements for Customer Due Diligence:
- Identifying and verifying the identity of customers,
- Identifying and verifying the identity of “beneficial owners” of customers that are legal entities,
- Understanding the nature and purpose of customer relationships, and
- Conducting ongoing monitoring to maintain and update customer information and identify suspicious transactions.
Most banks collect documents validating customer identity and beneficial ownership in person, either at a branch or small business lending office, but with social distancing in place, that isn’t possible. Beyond prioritizing the loyalty value of existing customers, banks can much more quickly process applications for customers that have previously completed the customer due diligence process.
Another factor that initially slowed loan application acceptance was the PPP's unique provisions. Even the most active and experienced SBA lenders had to quickly update their lending processes and technology with new underwriting criteria for payroll calculations, forgiveness provisions, government guarantees, and repayment schedules. And of course, the SBA still requires banks to "analyze each application in a commercially reasonable manner, consistent with prudent lending standards."
Now that the second round of federal stimulus funding is in place, with an additional $320 billion appropriated to the PPP program, its time to take a look at some of the trusted technology partners that underpin SBA loan origination. Quickly jumping in to help banks to weather the onslaught of loan applications, lending software vendors quickly made enhancements to meet the loan decision and forgiveness requirements of the Paycheck Protection Program.