Loan system bugs delaying PPP loans: AICPA
The second round of the Paycheque Protection Program seems to have finally gained ground, at least according to the data. The Small Business Administration said this week that from Jan. 11 to 31, more than 890,000 loans worth $ 72.7 billion had been approved. This is about a quarter of the $ 284 billion in total federal loan guarantees that Congress authorized for the second round of the P3 program.
Most PPP loans – $ 68 billion, or 93% – are second loans to borrowers who used up their first last year. The average loan amount for “second draw” borrowers was $ 102,228. The first-time borrowers got $ 4.8 billion in loan funds and the average loan size was $ 21,157.
However, the SBA numbers may mask the problems that individual borrowers face through the SBA’s electronic loan service system, E-Tran.
In a letter to the SBA this week, the AICPA said tens of thousands of legitimate loan applications were turned down because they were wrongly flagged for fraud and other errors. The SBA E-Tran system reports 20% to 30% of all first and second run PPP requests for further review, the AICPA said.
“Lenders and loan seekers do not understand the process to resolve these declines, creating great anxiety and confusion for small business owners,” said the AICPA.
Since these errors slow down loan applications and approvals, the AICPA said the SBA needs to advise applicants that their initial acceptance could take more than a week, potentially lengthening the time to receive funding.
“On average, borrowers should be prepared for the process to take two to three weeks, as underwriting must first take place with the lending institution and then again with the SBA before a formal offer is made. can be done. “
– Ben Johnston, COO, Kapitus
“Our experience with the second round PPP application process is that it is generally slower than the first round because there are more requirements to assess,” said Ben Johnston, COO of Kapitus. . CFO. “On average, borrowers should be prepared for the process to take two to three weeks, as underwriting must first take place with the lending institution and then again with the SBA before a formal offer is made. can be done. “
The SBA is tighter underwriting than last year, and there are stricter criteria for borrowers looking for second-draw loans, Johnston said.
Kapitus is a provider of growth capital to small businesses and partners with a New Jersey financial institution, Cross River Bank, to secure the loans.
As Kapitus sees strong customer demand for second-draw PPP loans, Johnston says demand is not at the same level as in April and May 2020, when there was even more economic uncertainty. .
Second round loans are “likely to be used to strengthen the businesses that will survive and help those businesses prepare to grow and reappear as leaders in their field,” said Johnston. “Some of that money will likely be used as growth and reopening capital. “
PPP loans can be canceled if the small business meets certain criteria for spending the funds. But the program is an attractive option even if a small business feels it won’t meet the loan cancellation criteria, Johnston said.
“This is a five-year loan with a 1% interest rate with no payment for the first 10 months,” said Johnston. “It’s the cheapest source of capital a small business will find. “
Loans issued before June 5, 2020 have a two-year maturity and loans issued after June 5, 2020 have a five-year maturity.
SBA data released this week showed companies in the accommodation and food services sector had the largest amount of net loans approved at $ 6.53 billion for 2021, compared to $ 42.48 billion approved in 2020. The construction sector started 2021 as the second largest, with $ 4.95 billion. in approved loans, followed by manufacturing with $ 3.98 billion in loan approvals.
The second round of the PPP ends on March 31