- The PPP closed to new applications over the weekend with over $130 billion in unclaimed funds.
- Going forward, the lenders that participated in the PPP will need to shift resources to deal with its aftermath.
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The Paycheck Protection Program (PPP) closed to new applicants on Saturday night, after having issued $521 billion in coronavirus relief loans to over 5 million small businesses, per USA Today. First launched in early April as part of Congress’s $2 trillion CARES Act, PPP loans were facilitated through banks and fintechs, which will collect fees from the government for doing so.
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Despite ravenous demand during the program’s first round, over $130 billion remains unused following the close of round 2. Here’s how the two rounds played out:
- Funds for the initial tranche of $349 billion in funding were exhausted within two weeks — and there was controversy surrounding loan access. Banks faced backlash for slow application processing, prioritizing existing clients, and favoring larger loan requests. But banks weren’t the only ones to blame for the frustrating loan distribution process: The SBA’s online portal experienced glitches due to overwhelming request volume.
- Congress authorized an additional $310 billion for the PPP in late April and banks improved their practices, but demand slowed considerably. Banks were relatively more effective during the second round in getting aid to smaller businesses that needed the funds most: Loans of $350,000 or less made up 63% of cumulative loans as of June 30, up from 51% in the first round. Yet duplicate applications and ambiguous forgiveness terms led to lower-than-expected lending volume.
Going forward, the nearly 5,500 lenders that participated in the PPP will need to shift resources to deal with its aftermath — but also remain prepared for a potential third round.
- Banks will have to dedicate significant resources to processing loan forgiveness applications. These could prove more strenuous than approving the actual loans due to the complex and shifting forgiveness guidelines. And although banks aren’t on the hook for defaults of the federally funded loans, providing guidance and informational resources to borrowers can ease the burden for their customers, and boost loyalty in the longer term.
- They’ll also need to determine what to do with the fee revenue they earned. Banks could collect over $24 billion in total processing fees from the PPP, which will largely go toward loan implementation costs, including extra staff and portal construction. But banks must then decide whether to allocate remaining profits toward their faltering bottom lines, or toward charitable causes, the latter of which some large players — like Chase and BofA — plan to do.
- Ongoing debates in Congress regarding a third stimulus bill float the possibility of a third round of PPP funding. Despite stalled momentum in the second round, there is a clear need for further aid: 80% of small business owners who got one PPP loan said they would like to take a second, and 44% of small business owners overall say they’d be unable to survive another six months without additional funding, according to a survey by the Small Business Majority. With Congress in talks to extend more support as the pandemic persists, banks should not completely shift resources away from their processing systems, so they can stand ready to facilitate more loans if needed.
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