PPP

Should I Apply to Become a PPP Lender?

One question being posed in the small business finance community is whether or not you should apply to become a PPP lender. Unless you are a very large well-capitalized company with a deep legal and compliance bench, you probably shouldn’t.

Here’s why:

• You must supply the capital. While a federal mechanism is being put in place to offload the PPP loans you fund, you need the balance sheet to fund the loans in the first place. Also, consider that community banks have historically expressed frustration with the guaranty process and that’s when times and loan volumes were operating at normal levels. You must be prepared for hiccups to take place that delay or even possibly prevent offloading of some or all of these loans.
• You only earn a 5% processing fee on loans under $350,000. For larger loans, it’s a smaller percentage. You can’t even charge the applicant any fees at all so your compensation is entirely dependent on the SBA to pay you. Consider that your underwriting costs may offset some or all of that fee, leaving very little room for profit.
• You must have 2019 audited financial statements available for inspection by the SBA.

And you must have either of the following:

1.

• You must already have been applying Bank Secrecy Act-level compliance prior to this crisis.
• You must have been originating at least $50 million in business loans or other commercial financial receivables per year for each of the last 3 years consistently.

OR

2.

• You must already be a service provider to a bank.
• You must already have a contract to support the bank’s lending activities.

It’s a tough bar to meet for a small and mid-sized small business financing provider, but the program isn’t really set up to become a major profit center for lending companies, it’s supposed to be a support center for SMBs to keep workers employed. Initially, many banks were hesitant to get involved because PPP participation was going to generate LOSSES for them. It still might.

So what’s the incentive to be a non-bank PPP lender? It’s a moral pursuit on the front-end rather than a financially-driven one. On the back-end, it’s a tool for lead generation, public relations, and elevating goodwill value. If such lenders are able to execute successfully, it could further develop trust for fintech with legislators, regulators, and the general public. On the other hand, however, if they perform poorly, it could reflect negatively on fintech as a whole.

So if you find yourself on the PPP lending bench, you’re not missing out financially. You can still become an agent/broker should an approved SBA lender accept you. Such a role presents limited upside financial potential, so if it’s riches you seek, the PPP doesn’t provide them.

Lastly, becoming a PPP lender certainly won’t save a dying lending company. Making loans at 1% interest to distressed and closed businesses isn’t going to somehow save a company with an already damaged loan portfolio. It’s just going to put it out of business faster.

Should you apply to become a PPP lender? That’s up to you. Good luck!

Kabbage Can Accept PPP Applications, But They Are Not a PPP Lender

When CNN announced on April 1st that Kabbage had been approved to provide PPP loans, many in the fintech world wondered how they did it when a PPP Lender Application for fintech companies had yet to be released.

On Tuesday, Kabbage formally revealed what their role in PPP lending has been. They’ve been acting as a broker. In a press release, Kabbage said they are at this time offering PPP loans on behalf of one or more approved SBA lenders and that the “loan agreements will identify the lender to small businesses at signing.”

That same announcement, however, explains that they are partnering with an SBA-authorized bank to deliver PPP loans. That arrangement still does not make they themselves a lender.

As of this writing, no application for fintech companies to apply for PPP lender status has been released, despite Senator Marco Rubio tweeting that one was expected very soon.

To-date, Kabbage says that they have received over 37,000 PPP applications, representing more than $3.5B in requests.

Update: 5/5/20 Kabbage did eventually obtain direct PPP lender status.

PPP Lender Requirements

Update: The PPP Lender Application is HERE

The elusive application to apply for PPP lender-approved status is expected to become available sometime on Friday. In the meantime, the SBA has published the requirements that a financing provider will have to meet to be eligible for approval. Federally insured depository institutions are already approved so these bullet points apply mainly to non-bank financing providers and online lenders.

• Must already originate, maintain, and service business loans or other commercial financial receivables and participation interests
• Have already been in compliance with the Bank Secrecy Act since at least February 25, 2019
• Have already originated, maintained, and serviced more than $50 million worth of business loans or other commercial financial receivables during a consecutive 12 month period in the past 36 months, or is a service provider to any insured depository institution that has a contract to support such institution’s lending activities in accordance with 12 U.S.C. Section 1867(c) and is in good standing with the appropriate Federal banking agency.

Loan underwriting requirements

• Confirm receipt of borrower certifications contained in Paycheck Protection Program Application form issued by the Administration;
• Confirm receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;
• Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application; and
• Follow applicable Bank Secrecy Act requirements

Notes from the SBA:
Entities that are not presently subject to the requirements of the Bank Secrecy Act, should, prior to engaging in PPP lending activities, including making PPP loans to either new or existing customers who are eligible borrowers under the PPP, establish an anti-money laundering (AML) compliance program equivalent to that of a comparable federally regulated institution. Depending upon the comparable federally regulated institution, such a program may include a customer identification program (CIP), which includes identifying and verifying their PPP borrowers’ identities (including e.g., date of birth, address, and taxpayer identification number), and, if that PPP borrower is a company, following any applicable beneficial ownership information collection requirements. Alternatively, if available, entities may rely on the CIP of a federally insured depository institution or federally insured credit union with an established CIP as part of its AML program. In either instance, entities should also understand the nature and purpose of their PPP customer relationships to develop customer risk profiles. Such entities will also generally have to identify and report certain suspicious activity to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). If such entities have questions with regard to meeting these requirements, they should contact the FinCEN Regulatory Support Section at FRC@fincen.gov. In addition, FinCEN has created a COVID-19-specific contact channel, via a specific drop-down category, for entities to communicate to FinCEN COVID-19-related concerns while adhering to their BSA obligations. Entities that wish to communicate such COVID-19-related concerns to FinCEN should go to www.FinCEN.gov, click on “Need Assistance,” and select “COVID19” in the subject drop-down list.

Each lender’s underwriting obligation under the PPP is limited to the items above and reviewing the “Paycheck Protection Application Form.” Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower. The Administrator, in consultation with the Secretary, has determined that lender reliance on a borrower’s required documents and attestation is necessary and appropriate in light of section 1106(h) of the Act, which prohibits the Administrator from taking an enforcement action or imposing penalties if the lender has received a borrower attestation.

Lenders will need to complete this form with each loan.
Borrowers must complete this form.

The full guidelines can be found here