The current economic crisis along with restrictions related to pandemic has significantly impacted small businesses. The Paycheck Protection Program (PPP) is a loan designed to provide incentive for small businesses to retain workers on the payroll. Small Business Administration (SBA) will forgive loans if funds are used for eligible expenses (payroll, utilities, rent and mortgage) and the employee retention criteria are met. The program ended on Aug 8, 2020. The PPP loan statistics are staggering.
The program was extremely popular. To put it in perspective, the size of PPP loan was more than 25 times the size of SBA loans granted in 2019. As per National Federation of Independent Business 80% of the small businesses applied for PPP loan and 54% of borrowers expect their loan to be fully forgiven. A 100% forgiven loan would benefit the borrower during this time of economic hardship while helping lenders reduce a low interest loan.
Lenders have 60 days to determine if and how much of the loan is eligible for forgiveness. Lenders are tasked with interpreting the evolving regulatory guidance from SBA and make the determination while ensuring full auditability. There is increased scrutiny on the loans as more and more instances of fraud get reported. The challenges that the lenders face include
- Frequent changes to rules, guidance, and forms — There has been more than 25 rule revisions, notices and forms published by SBA since the inception of the program. The lenders are uncertain of when to start the forgiveness processing as the rules keep changing frequently. The lenders are also tasked with interpreting the frequent changes and updating their forgiveness process.
- Detection and Prevention of Fraud and Abuse –- The detection of fraud has led to increased scrutiny of the borrower eligibility, the loan approval and loan forgiveness process. The regulatory agencies are requesting information from lenders. The lenders process should be auditable and explainable and stand any future scrutiny. In July, banks filed seven time the average number of suspicious activity report and this points to potential fraud in business loans.
- Borrower Experience — Up to 80% of forgiveness processing requires one or more borrower outreach. This can lead to borrower frustration. Lenders need to maintain a fine balance; the scrutiny and checks need to be fool proof while ensuring that the borrower experience is not compromised.
- Systems Readiness and Information Security — Most lenders were not ready to process application or forgiveness as the program was rolled-out in a short notice. The lenders had a short window to implement a solution that integrates multiple internal and external systems. Lenders had to build in the necessary safeguards to secure borrowers’ sensitive information.
Manual validation of PPP forgiveness applications will cost lenders millions of dollars & increase risk. The complexity of the PPP forgiveness rules, and the frequent guideline changes would lead to increased effort and cost. The initial data suggest that lenders spend up to 4 hrs. to manually process an application.
Lenders should automate their forgiveness processing to
- Provide a better customer experience to borrower in this time of hardship — Provide fast and accurate response to borrower
- Be ready to handle evolving rules and if required, re-process application with minimal effort
- Eliminate manual error and be ready for future audits by regulators
- Reduce cost of processing
- Comply with the 60-day regulation
Certain aspects of forgiveness processing like application submission and integration to SBA has been automated, there are many aspects that still are manual. The lenders forgiveness application process is manual today. Technology can enable lenders automate the review process by
- Classifying and extracting information from third-party documents including payroll costs, rent, utilities, and mortgage.
- Executing the reconciliation of the application against the third-party document provided.
- Integrating the borrower submission and lender review process into one single automated process
At Cleareye.ai, we have built a simple and intuitive solution that automates the lenders forgiveness review process while increasing borrower experience. Cleareye.ai’s PPP Loan Forgiveness Processing Engine leverages advanced Artificial Intelligence to reduce processing time by up to 70%. The solution integrates with existing loan processing engine and reduces processing time to less than 30 minutes. The solution eliminates manual error and provides uniformity of processing.
Small business is the lifeline of the economy and during this challenging time we have an obligation to do everything possible to help the small businesses. An advanced AI engine provides a faster, simpler, efficient, and effective solution for small businesses. Lenders can help small businesses revive faster and bring in an era of prosperity.
About the Author – Sujith Madhusoothanan
Sujith Madhusoothanan is the Vice President of Customer Success at Cleareye.ai, a technology company that helps banks launch tailored products in months, while delivering unforgettable customer experiences. He has more than 20 years of experience working with Fortune 500 companies to solve their most important business challenges. He is a leader with passion for purpose driven leadership, building customer-centric solutions & high performance teams. Sujith believes in leveraging technology to positively impact lives. He is based in New York.