By Taylor Adkins, Q2 VP of Product Management
Now that we are (mostly) on the other side of the SBA Paycheck Protection Program loan origination cycle – and two full rounds of SBA funding – lenders are turning their attention to PPP loan forgiveness. There is considerable anxiety among the banks and credit unions we have spoken to because, like with PPP origination, SBA guidance regarding forgiveness adjudication is incomplete, ambiguous, and likely to change continuously in the coming weeks. As lenders begin to determine their approach to loan forgiveness, industry analysts such as David O’Connell from the Aite Group suggest that many small business borrowers do not fully understand the SBA rules governing their PPP loans and may not be using the proceeds of these loans permissibly.
Do borrowers really know their limit?
Currently, borrowers must spend a minimum of 75% of the proceeds of their PPP loans on payroll in order for their loans to be forgiven. However, many borrowers may be unaware these limits could impact loan forgiveness. Ultimately, most borrowers applied for these loans expecting them to be forgiven, and now borrowers are at risk of being saddled with debt they cannot afford to pay because they did not spend their PPP loan proceeds the right way.
While discussions continue on Capitol Hill to determine the final requirements for loan forgiveness, lenders must start thinking about how they plan to respond to this potential problem. Many financial institutions are establishing processes to collect documentation from borrowers, working out their loan forgiveness calculations and defining their adjudication workflows; however, this is not simply a math problem, nor is final adjudication the only problem to solve.
With borrowers in danger of being stuck with an unforgivable loan, lenders need to start thinking proactively about how they can help borrowers achieve forgiveness.
Q2’s approach to SBA PPP loan forgiveness
At Q2, we believe that loan forgiveness is in the best interest of both borrowers and lenders. In addition to providing loan forgiveness calculations, due diligence, and final adjudication capabilities in our PPP Loan Forgiveness solution, we have also invested significantly in solving the core problem of achieving loan forgiveness. Most SBA PPP Loan Forgiveness solutions on the market focus on the end of the process – gathering documentation from the borrower, capturing a "good faith" verification from the borrower regarding the accuracy of the documentation provided and calculating loan forgiveness. In contrast, the Q2 solution is your partner throughout the forgiveness process, engaging your borrowers, proactively monitoring their usage, and providing coaching and feedback, which encourages permissible usage of PPP loan proceeds. This allows lenders to achieve a significantly higher percentage of overall loan forgiveness. We call this "proactive compliance," and here is how we do it.
Proactive compliance
Our SBA Loan Forgiveness solution proactively engages borrowers at different points during the 8-week forgiveness period and collects details regarding their current use of loan proceeds. You can analyze the borrower's usage data in real-time and provide feedback to the borrower that encourage compliant and permissible use of PPP loan proceeds. For example, if a borrower takes out a $250,000 PPP loan and attests to $50,000 usage on payroll four weeks after disbursement (i.e., the midway point during the forgiveness period), our solution proactively tells the borrower that their payroll usage must increase to achieve loan forgiveness. This messaging provides a gentle and proactive nudge to increase payroll usage over the next few weeks to meet with a 75% minimum threshold.
With borrowers at risk of being stuck with debt they cannot afford; lenders must think about more than just loan forgiveness adjudication; they need to think about how to help borrowers achieve forgiveness. Q2 has the only solution on the market that gives a lender the ability to help achieve loan forgiveness, not just manage it.
Learn more about our SBA loan forgiveness solution
Have questions? Contact us today.
