BBusinesses that have received a loan from the federal paycheck protection program and are expanding or intend to seek financing for expansion should apply for a loan forgiveness as soon as possible, according to the bankers.
While a large majority of borrowers with an outstanding P3 loan are expected to eventually get remission from the US Small Business Administration, Federal Assistance Program debt that remains on the books will be factored into the research. of growth capital.
“We will consider this a debt until it is fully written off,” said Eric Mills, senior vice president and regional director of corporate banking for Fifth Third Bank in western Michigan.
“It would be calculated on a case-by-case basis,” Mills added. “Obviously, from our perspective, we strongly encourage our clients to ask for forgiveness. This would provide a solution so that they don’t have that extra debt included in our analysis because they want to start growing their business again. “
However, a company’s PPP loan outstanding is “a consideration, not necessarily a hindrance” when seeking financing from Fifth Third, said Michael Shepherd, senior vice president and national SBA director of the based bank. in Cincinnati, Ohio.
Mills urges small businesses that need capital to support growth to apply, even though a P3 loan is still on the company’s books.
Most canceled loans
In response to the COVID-19 pandemic, the SBA approved 11.4 million PPP loans nationwide for a total of $ 791.3 billion over two rounds in 2020 and 2021.
In Michigan, more than 128,000 small businesses received a total of $ 16 billion in P3 loans between the two rounds.
Small businesses that have used the money for qualifying expenses can claim and receive full or partial forgiveness of their P3 debt. As of July 30, the SBA had canceled more than 4.8 million PPP loans totaling $ 441.8 billion.
PPP borrowers first file a request for remission with the bank that originated their loan. The bank then reviews it and submits it to the SBA for decision.
The bank has 60 days to review and submit the pardon request, and the SBA has an additional 90 days to make a decision. Most decisions are made in 30 days or less, according to Jacob Brown of Fifth Third, the bank’s director of national SBA operations.
The SBA has so far approved a large majority of pardon requests. An expedited application process for loans of up to $ 150,000 is “incredibly simple,” Shepherd said.
On August 4, the SBA opened an online portal for small businesses with PPP loans of up to $ 150,000 to apply directly to the agency for a rebate. Banks that have participated in the PPP can choose to use the portal if they do not have one.
Looking for new credit
As the economy continues to recover from the deep dive of over a year ago, bankers are now seeing small businesses that got a PPP loan coming in for new credit to support growth or for a fund. additional bearing.
“The economy is doing well, (businesses) are growing and people are investing a lot in their business in terms of automation because there is a labor shortage,” said Sean Welsh, regional president of Grand Rapids for PNC Bank.
The biggest challenge right now is for the SBA to work on a backlog of applications, he said.
Because banks review PPP borrowers’ forgiveness requests before submitting them to the SBA, borrowers need to know if they meet federal criteria and have a good idea of whether the debt will be forgiven, Welsh said.
For businesses with an outstanding PPP loan that are now looking for new credit, “we should have a good idea if it’s going to be forgiven and then factor that in as we go along,” Welsh said.
TO Horizon Bank, new commercial loan applications from small business clients with outstanding PPP debt are processed “as usual,” with the presumption that a business awaiting a response from the SBA will get a remission, the Regional President David Quade.
“We understand the program and we understand where they are at in the forgiveness process, and we’re just taking a holistic approach that it’s going to be forgiven,” Quade said. “This is what has happened, this is the intention, and this is the notion that you have to work with.”
This approach may be different for small businesses changing banks, Quade said. He advises small businesses considering moving to another bank to wait until their current PPP loan is canceled by the SBA.
First National Bank of Michigan in Kalamazoo reviews new small business credit applications with an outstanding PPP loan in the same manner and with the presumption that they will eventually get a discount.
“He just needs an explanation. That’s it, ”said Dan Bitzer, President and CEO of First National Bank.
Overall, bankers are seeing strong demand for loans as the economy improves, although many borrowers with strong balance sheets choose to use cash first to finance an expansion or capital purchase before to contract new debts.
“There is so much cash and cash that people are paying off debts or doing things with money,” Quade said.