Banks, borrowers are reluctant to take the SBA questionnaire on large PPP loans

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Lenders and borrowers turn down a questionnaire that many fear could result in the Small Business Administration being refused forgiveness for an immeasurable number of Paycheck Protection Loans.

The SBA issued a policy last week asking lenders to send a nine-page questionnaire to small businesses that have borrowed $ 2 million or more under the PPP. The lenders are also responsible for submitting the completed surveys to the agency.

After receiving a notification letter, lenders have five business days to upload the “Standard Credit Review Documentation” and notify the borrower. The SBA gives borrowers 10 working days to fill out the questionnaire and send it back to their lenders.

“Failure to respond in a timely manner to an SBA request may result in a delay in the SBA transferring the loan waiver amount … or a determination that the borrower was not eligible for the loan or was not eligible to receive the loan amount or loan waiver amount requested . ”SBA said in a letter to the lender.

Such a process will challenge borrowers and lenders already grappling with a coronavirus resurgence, industry watchers said. And there are concerns that the SBA could use borrowers’ responses to deny waivers, causing lenders to cling to large, short-dated loans.

“This is becoming a human and logistical nightmare for all banks,” said Julio Gonzalez, CEO of Engineered Tax Services in West Palm Beach, Fla., Adding that lenders should contact their clients to help them prepare the questionnaire .

The SBA has not published a schedule for its credit check program. The agency did not respond to requests for comments on the questionnaire.

There are concerns that certain aspects of the questionnaire could increase the risk of forgiveness being refused.

The biggest concern is timing.

The survey prompts borrowers to compare their second quarter results with last year’s results, using data obtained after receiving most of the small business’s PPP loans. The stimulus package that led to the launch of the PPP in April required borrowers to certify in good faith that a loan was required due to the situation when they applied.

There could be cases where a company worried about its profitability applied for and received a PPP loan only to perform better than expected financial performance after receiving the funds, industry watchers said.

The time frame discrepancy “has left borrowers very frustrated,” said Nathan Rogge, CEO of the $ 1.5 billion Bank of Southern California. “There’s a lot of horror there.”

The Bank of Southern California, which has funded more than 3,000 total PPP loans totaling $ 500 million, has 33 loans that would be subject to the questionnaire, according to the SBA and the Treasury Department. None of these large loans had been granted, said Rogge.

“The government has continued to shift the goalposts, the criteria, the requirements, the obligations of the banks,” said Rachel Goldman, attorney at Bracewell in New York.

“You have to keep in mind that it was imperative to get the money out of there as soon as possible,” said Goldman. “The banks were initially criticized for not doing enough.”

Nearly 30,000 PPP loans exceeded $ 2 million, or just 0.6% of all approved loans, according to data released by the SBA and the Treasury Department. In terms of dollar value, they accounted for about a fifth of the $ 525 billion approved under the program.

Many of the largest participants in the PPP are among those with the most credit.

JPMorgan Chase, Bank of America, and PNC Financial Services Group have each issued more than 1,000 PPP loans of $ 2 million or more, according to the SBA and the Treasury Department. Truist Financial had approved 980 loans that exceeded $ 2 million.

Lenders and borrowers pay close attention to the subject. The SBA’s announcement that it will collect data has been viewed more than 10,600 times since its plan was published in the federal register on October 26.

The SBA approved more than 5 million PPP loans for approximately $ 525 billion between April 3 and August 10 when the new lending stopped. The loans should enable borrowers to maintain employee pay during the pandemic and the resulting economic stalemate. Loan proceeds spent on salary and benefits, occupancy, and other basic expenses may be waived.

Almost immediately after PPP launched, large exposures proved to be a sore point as large, well-known companies like Shake Shack, Ruth’s Chris Steak House, and the Los Angeles Lakers were approved for funds that the public thought were intended for small problems Companies. The revelations led the SBA and the Treasury Department, the administrators of the program, to announce plans to review credit over $ 2 million.

Alex Sanchez, president and CEO of the Florida Bankers Association, said the questionnaire was an insult to small businesses that have been in trouble.

“Many of these companies suffered a lot in April and May,” said Sanchez. “SBA must adhere to the program when the terms were announced. Otherwise it’s unfair. “

In a November 17 letter to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, more than 80 trading groups, including the American Bankers Association, the Consumer Bankers Association and the Independent Community Bankers of America, criticized the questionnaire. The groups suggested replacing the survey with a narrative statement from borrowers reiterating their trust certificates.

Some industry watchers fear that lenders could face bigger problems if it is discovered that their underwriting was lax or they violated anti-money laundering laws. Several agencies could be involved, including the SBA, the Auditor’s Office or the Department of Justice.

“If there is a large loan audit or review and it is found that controls fail, that financial institution will be subject to regulatory scrutiny,” said Thomas Kokalas, attorney at Bracewell.

“What we’re really talking about on the side of the bank is they are pulling through the basic measures [AML] Controls and procedures that are straightforward and banks know how to verify borrower information, ”added Kokalas. “While this can be pretty easy, depending on the volume, it can be difficult for banks to keep track of things.”

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