Executive News: Next big hurdle: ‘forgiveness’

It may be a new beginning as consumer patience wears off and people begin to venture out to test the waters.

Some of us recognize the difference between previous recessions (usually they begin in a sector, like energy or agriculture) and this one. Right now, consumers are on the front lines o

f the current recession (no jobs, no income, no spending) and sectors like retail, restaurants and travel have followed consumers’ downward spiral while taking a massive hit to their collective bottom lines.

When we ultimately reopen as a nation, businesses that consumers used to frequent will most likely find that the former customers are gone, and the “new” customer is a lot different than the old one. The “old” one may be among the 30 million or so who have lost his or her job. He or she may have depleted what little savings they had, just to survive, and their view of the world has changed as a result.
As for lenders, especially banks, we haven’t really arrived at the hard part yet.

“We haven’t?” you may ask.

Nope. At least I don’t think we have. Forgiveness is the next big thing for our member banks.

A few of your customers will soon discover something they weren’t expecting. Many of them were either thinking or were advised their PPP loan was essentially “free money.” The certifications they made at the time of the application were not true in some instances. For example, the customer’s loss was not related to the COVID-19 pandemic and, as a result, some or all of the customer’s PPP loan may not be forgiven.

Therein lies the problem: Who will make that determination about forgiveness? As I understand it, the decision will be made by distant bureaucrats who work for the Small Business Administration. My guess is these SBA officials will not be as understanding as you might be and, as a result of their ultimate decisions, I’m pretty sure your customer is going to be mad at somebody. I just don’t want that “somebody” to be you.

So. What can we do now to head off the massive unhappiness that’s coming our way in less than seven weeks? What can we do, collectively and individually, to maintain the industry’s good image?

The first step is to make sure you’re aware of what’s likely coming at you. The way the rollouts have been handled so far – delayed and conflicting guidance on how to handle various aspects of PPP loans, for example – doesn’t give me much encouragement the forgiveness process – which is still a secret – will be very user friendly. We’ll have to read it carefully.

The second step is to review the PPP loans you made. You know your customers better than any SBA bureaucrat does, so make a list of the ones that give you pause as to whether that specific borrower’s loss can withstand extreme scrutiny. Analyze the following:

Did he or she really suffer a loss as a direct result of the COVID-19 virus?

What kinds of and how many jobs were lost as a result?

What was your customer’s payroll when those layoffs (or terminations) happened?

How did your customer calculate the total amount of payroll that was lost as a result of the layoffs (or terminations)?

What was the amount of that customer’s loan?

What’s the amount they’re claiming for mortgage payments, interest and utilities?

What documentation does your customer have available to support his/her/its effort to rehire laid-off (or terminated) employees?

What was the employee’s salary or payroll at the time he or she was laid off or terminated?

What was that same employee’s salary or payroll when (if at all) he or she was reinstated?

What mortgage and interest payments were made by the customer?

How much did he/she/it pay for utilities with the loan proceeds?

What percentage of the borrower’s total loan amount was used for payroll purposes? For mortgage and interest purposes? For utilities?

Once you’ve done that, the third step is to meet individually with those customers who made your list. Explain how the forgiveness process is going to work (assuming we get guidance from Treasury before your meeting) and go over each step of the process. Point out any concerns that you may have and try to prepare your customer for the upcoming SBA review.

The fourth step is to follow up with your customer following the SBA’s review and final forgiveness determination.

Explain the status and process for his/her/its remaining loan amount going forward.

Review the SBA’s analysis of the customer’s loan.

Point out any matters used in making the forgiveness determination that might be questioned on appeal.
Offer to assist your customer with preparing his/her/its appeal, if appropriate.

Any way you slice it, I’m thinking your customer is not going to be amused. By taking some or all of these suggested steps – and additional ones that might occur to you – you will be able to prepare your customer and deflect any anger or dissatisfaction aimed at you or the bank.

You know, and I know, this PPP process has been the most gigantic cluster in the history of federalism. But it’s up to you, and to us here at the OBA, to show it in the best possible light.

If you have customers who would be willing to share their individual experience with the program, please let me know and we’ll ask them to help us tell the good story about banking in their community and across the state. It’s more than about time to let people know about the industry’s efforts and dedication to making things better for everyone.

That’s what you do every day.

And remember – together we are stronger. That’s why your predecessors formed the OBA in the first place more than 120 years ago. If ever there was a time to emphasize this point, this pandemic experience is it!