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Without Strong Technology, PPP Round Two Could Leave Lenders Floundering

“If lenders don’t invest in robust technology solutions for managing the coming onslaught of loan applications, they risk, at best, falling behind other lenders and, at worst, mismanaging loans and applications when they do come in.”

Much needed relief is on its way.

On December 21, 2020, Congress finally took decisive action and passed a second coronavirus stimulus bill.

Included in the package: an additional and much needed $284 billion in loans for small businesses under the Paycheck Protection Program (PPP) framework established by the March 2020 CARES Act.

Not only does this expansion provide more funds for the much needed program, it also addresses key issues such as expense deductibility and forgiveness period.

While these changes will make the program much more appealing to borrowers, likely driving even more demand than was observed in March, they also add even more red tape through which lenders will need to navigate.

Mariya George, president of Cleareye.ai, commented on how increased program complexity is creating headaches for banks which lack strong technology solutions:

“If lenders don’t invest in robust technology solutions for managing the coming onslaught of loan applications, they risk, at best, falling behind other lenders and, at worst, mismanaging loans and applications when they do come in.”

Program Changes Make the PPP More Attractive Than Ever

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Beyond merely providing more funding for the program, Congress made several changes to the PPP which will impact borrowers and lenders alike.

These changes will likely make the PPP more attractive to businesses which had issues with the original program or which avoided the program due to uncertainty in policy and enforcement.

Expense Deductibility

While loan amounts did not count as taxable income in the initial version of the PPP, expenses covered by the loan were not tax deductible expenditures.

December’s bill changes this, allowing businesses to deduct expenses covered by the loan amount.

Many borrowers raised concerns with the lack of expense deductibility in the first iteration of the program.

The purpose of the PPP has always been to enable businesses to cover payroll and other expenses,many of which businesses are usually able to claim as deductions. Not allowing this with forgiven PPP loans forced businesses to analyze whether taking such a loan would actually be in their best interest.

This issue has now been put to rest. Businesses need not fear major changes to their end of year accounting simply because they were given relief funding and many that passed over the program initially may be interested in the second round.

Variable Forgiveness Period

December’s bill also allows borrowers to choose the duration of the period over which they must spend a sufficient amount and maintain their payroll in order to qualify for loan forgiveness.

This period begins on the day funds are received and ends on any day chosen by the borrower that is between 8 weeks and 24 weeks later. So long as payroll is at its pre February 15 levels on the last day of this period, the borrower will qualify for loan forgiveness.

Different businesses will be in very different situations and this offers them much needed flexibility.

Borrowers who want to qualify for forgiveness as quickly as possible will be able to stick with the eight weeks. Meanwhile, borrowers who think it will take longer to scale their payroll back to its pre 2/15 level can opt for a longer period.

The theme here is quite clear: these new changes will make the PPP more attractive to more small businesses than before, likely increasing demand for this second wave of loans.

Lenders are Navigating a Minefield

While major changes to the PPP make the program more attractive to borrowers, they will only increase the headache for lenders.

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Manual loan processing workflows that worked last time won’t work again.

The SBA has unveiled a new loan portal and a new API. Lenders will need to wade through the same mountain of red tape as they needed to last time around while simultaneously training on a totally new platform interface.

To add insult to injury, the SBA is capping the number of users from each lender who will have platform access.

Lenders who were planning to solve their problems simply by throwing more people at the process will need to rethink their strategy.

Automation is the Key

In order to cope with the increased demand, lenders will need to invest in automated processes driven by robust technology.

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Purpose built, automation solutions for managing PPP applications and loans will enable faster, simpler, and more efficient loan processing, helping lenders get ahead of the oncoming surge and facilitate much needed relief to their small business clients.

For businesses, relief is almost here. For banks, the challenge has only begun.

At Cleareye.ai, we have built a simple and intuitive solution that simplifies the PPP Lending process and automates the Lenders Forgiveness process to improve borrower experience. Our PPP Loan Forgiveness Processing Engine leverages advanced Artificial Intelligence and reduces processing time to less than 30 minutes, eliminating manual error and providing process uniformity.

Learn more about our PPP solution here


About the Author – Mariya George

Mariya George is the President & Chief Revenue Officer and Member of the Board of Directors of Cleareye.ai. She has several years of experience in global banking, consulting, and business. Mariya has a degree in Computer Science and is passionate about finding and building talent, especially women in technology with strong entrepreneurial skills. She is based in New York.

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