Podcast
ComplianceJune 11, 2020

Episode 1: Ongoing 1502 Filing Requirements and Common Errors to Avoid

COVID-19 Podcast: 1502 Reporting under the Paycheck Protection Program

The Small Business Administration has started accepting 1502 filings, a process which triggers payment of PPP loan processing fees to PPP lenders. In this two-part podcast series, Wolters Kluwer Vice President, Banking Compliance Solutions, Samir Agarwal has invited Lori McCausland, a Senior Associate with JR Bruno Associations, to provide an overview of PPP lender obligations, outline common missteps in the process and then take a deep dive into the intricacies and nuances of 1502 filings, including servicing, cancellations and delinquencies.

Samir Agarwal
Vice President & Segment Leader, GRC Community Banking, Compliance Solutions

Transcript:

Greg Corombos, News Director, Radio America  00:05
Hi, I’m Greg Corombos, and thank you for joining us for this special podcast series. In this edition, we’ll be taking the mystery out of filing 1502 reports in connection with the Paycheck Protection Program, commonly known as PPP. There’s a lot of important information lenders need to know. So, we want to make sure any remaining confusion is cleared up as soon as possible. Here to lead the discussion through the ins and outs of filing a 1502 report is Wolters Kluwer® Banking Segment Leader Samir Agarwal. He’s joined today by Lori McCausland, a Senior Associate with J.R. Bruno and Associates, to provide expert insights on this issue.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  00:44
Thanks, Greg. Let’s set the stage for where we are today. The CARES Act has been passed, and the Paycheck Protection Program has been funded through Phases One and Two. That means $510 billion in loan guarantees from the SBA have been distributed among lenders across the United States. To put this in more perspective, 4.5 million loans have been made to small businesses, and that’s through over 5,500 different lenders. What we know now is that lenders have been funding loans, and borrowers and lenders are curious about the forgiveness criteria and how to apply for it. The SBA has just defined some of the disbursement reporting criteria and how to obtain processing fees that are promised in the CARES Act for lenders. Lenders are trying to understand this process better. Lori, thank you for joining us. My first question that I’d like to dive into is what is the 1502 report, and why is it so important?
 
Lori McCausland, Senior Associate, J.R. Bruno and Associates  01:43
The 1502 report is the standard form that lenders use to report information about their SBA loans to the SBA.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  01:50
How do you register and sign up for 1502 reporting as a lender?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  01:55
For lenders who have previously worked with SBA 7a loans, they should be familiar with SBA Form 1502, and they should already be signed up to use the program. For lenders that are new to SBA lending, you want to make sure that you refer to an SBA notice that was submitted on; I believe it was May 21, and it’s notice number 5000-20028. It does give unique detailed information on how to sign up to submit your 1502 reports. For both new lenders and existing lenders that were using the 1502 report, you want to make sure for your PPP loan that you’re also providing ACH information so that you can get your processing fee paid, as well as a certification that the information you’re providing on your PPP 1502 reports is accurate.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  02:49
When could lenders begin submitting the 1502 report?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  02:52
The initial 1502 report for PPP loans could start being submitted on May 22, and the submission would go to Colson Services. The initial 1502 report for the PPP loans should have been submitted by May 29 for any loans that were dispersed more than ten days before that time. Additionally, going forward, the 1502 reports should continue to be reported for all loans under your PPP program that are fully dispersed within ten days of final disbursement.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  03:26
You mentioned 7a loans, and we know that PPP loans are similar. Are the reports for filing the 1502 separate, or are they combined for both programs with the SBA?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  03:37
With your 7a reports, you’ll still want to report on a regular monthly basis based on the calendar that you’ll find on Colson’s website. For the PPP loan, you do want to put those on a separate report. You can put multiple loans on one report, but they all need to be PPP loans on one report and 7a loans on a separate report. You’ll want to remember with your PPP loans, because you may still be originating, that you’ll need to submit multiple reports possibly in one month. We do recommend it as a best practice that you do it once a week.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  04:15
What or who is Colson? Is it a division of the SBA?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  04:19
Colson Services Corporation is actually an independent third-party provider, who provides administrative and financial services to government agencies, as well as financial intermediaries. They are a subsidiary of Bank of New York Mellon, and they do help the SBA run the secondary market with financial transfers and accounting for 7a loans sold on the secondary market. Basically, they perform banking functions that the SBA is not able to do.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  04:50
At Wolters Kluwer, we’ve had a lot of institutions that have been traditional SBA lenders or have just gotten into SBA lending, or maybe they’ve had a small portion of their portfolio retain SBA lending activity. How did lenders really get set up to do this? As you go through each of the steps, are there things that we need to look out for, or some expert opinions and advice that you could give us?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  05:15
You do need to go to Colson’s website and sign up with them so that you can start reporting your 1502 reports. If you’re a new lender, if you’re already reporting 1502s on your 7a portfolio, then you would not need to sign up again. As we mentioned before, you would just need to go in and provide certification on your PPP loans. If you are a new lender, you do need to go in and sign up to be able to process and submit your 1502 reports.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  05:46
How long does it take to complete the sign-up process?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 05:49
I would say less than a few days. I think within a day or two, I received one email with my User ID, and then a separate email that had my password included. 

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  05:58
Let’s say I’m signed up. Is there only one way to submit my report? Is it hard? Is it easy? What do I have to look forward to once I’m signed up?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 06:07
There are a couple ways to submit the report. One of the oldest formats to use is an email attachment. There is an Excel spreadsheet template on Colson’s website that provides you with a template that you can use to manually input all your SBA loans or PPP loans into that template to submit via email. There is a specific email address that those reports go to. You can also use the 1502 dashboard from Colson. It’s an online, real-time procedure that you can use to input your information into the columns and then submit it from there.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  06:48
Is there one method that’s better than the other or faster in the SBA processing, the loan guarantee, and the disbursement acknowledgment?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 06:57
I don’t know that one is faster than the other, but I do know that Colson Services has really been encouraging lenders to use the dashboard. Even if you submit your 1502 report via email to Colson Services with the Excel spreadsheet attached, once Colson Services uploads that information, verifies it, and vets it for any discrepancies or exceptions that will need to be reported on, that information is also going to be available through the dashboard. Then, the best way to make those corrections is to go into the dashboard and do it.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  07:38
If I make a mistake, are there any grace periods that are available to us, or what happens if I need to go back in and correct one of the records for some of the loans?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  07:47
That information will be sent to you in different ways. Also, if you’re signed up to use the 1502 dashboard, you can actually go into the dashboard in real-time and make those corrections. Colson Services does provide an exception or discrepancy report to lenders once they’ve input the information on their end and reconciled it. They will then be able to provide you with a discrepancy or exception report depending on the columns that may contain inaccurate information or don’t seem to match up with what the SBA has provided to Colson. So, you want to make sure that you do have a way to get that information and go in and make those corrections.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  08:32
I heard you say something that sparked my interest, and I want to make sure I’m clear about. Signing up for the SBA dashboard or the Colson dashboard, is that a separate sign up from the ability to submit 1502 reports?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  08:49
It isn’t once you get initial access to the dashboard, which is what you need to be able to go in and provide those certifications. One of the other things that I didn’t mention earlier was that you also need to provide an ACH.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  09:04
That’s right; I need to get paid, right?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 09:06
Yes, you need to get paid. The way you do that is by providing Colson Services with your ACH information for an account that is owned by the bank so that those processing fees can then be distributed to the bank.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  09:19
Is that the only way processing fees can be distributed, or are there other methods? It is at this point; it does need to be through ACH. I know you mentioned May 29 is the first date for the report. What about that timing? Let’s say we’re a little bit late on sending something in; we didn’t hit the May 29 deadline, and it’s over ten days. What happens to our filing? Will it still be accepted, or are we kind of locked out from filing for the guarantee at that point?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  09:47
You can still file. I believe that Colson Services will still accept your 1502 reports after the fact. There shouldn’t be any penalties involved. However, there will likely be delays in getting your processing fee paid. So, I would say that that’s probably the biggest risk.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  10:03
If we want to make sure that we’re getting processing fees and the guarantees, we’ve got to be on top of it and make sure we’re sending it to them. That brings up another topic. What are our ongoing responsibilities as a lender, and what are some of the best practices you can share as we’re communicating these 1502 reports to Colson?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  10:25
Typically, when you’re reporting on a monthly basis to Colson Services, you’re doing it because there are payments that have been made, and you’re updating ending balances and things like that with your SBA portfolio, ultimately to the SBA. But with a PPP loan, there aren’t any payments for the first six months. But the SBA does still require that you submit reports on a monthly basis to acknowledge any pay downs or forgiveness, if any loan amount or the entire loan has been forgiven, or if any loans have been paid in full - any of those things that could happen before the payments are actually due.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  11:02
So, let’s talk a little bit about that. Let’s say I have a couple loans that my borrowers have decided that they want to cancel, or they don’t want to go forward in funding. How do I notify the government about that? And if they’ve already paid me fees, let’s say we’ve dispersed alone, but they’re returning it under the Safe Harbor act that’s associated with PPP? Do I get to keep the processing fees? Or do I pay them back? How does that work?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  11:27
Unfortunately, those processing fees would not be collectible on any loans that were paid off during the Safe Harbor period. That data and before the first 1502 reports needed to be submitted.  Any of those canceled or prepaid loans should have been documented in one of two ways. For canceled and prepaid loans, you can go directly into a system called E-Tran, which is the system that would have been used to get the approvals on the loans, and you can cancel them there. The other way is to code them on your 1502 report as canceled or paid in full. Those are the two ways you can do it, and unfortunately, again, the processing fee would not be applicable in those cases.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  12:12
Understood. Maybe I’m getting a little bit ahead of our conversation for 1502, but when forgiveness is in play, if forgiveness is denied, does that also affect any type of 1502 reporting?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  12:25
It will if part of the forgiveness is applied. You can report the amount that was paid down on principle through the 1502 report, and then anything that’s still outstanding, you’ll want to go ahead and continue on a monthly basis to report on those during the deferral time. There won’t be any payments due, but you want to report that they’re still outstanding, on a monthly basis, with the other PPP loans. In addition to that, you want to make sure that when payments are due that you’re also reporting the payments on those.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  12:58
Lori, I’m learning a lot from you and find it intriguing. I’ve got a few more questions. What are the top mistakes that you think lenders make and can avoid during the 1502 reporting process?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  13:11
One of the top things that I always like to make sure that lenders are aware of is that you’re keeping your 1502 report contact information up to date. At the top of the form, there is room for you to put the contact person, their phone number, fax number, and email address. You want to make sure that the information is current. A lot of lenders, if they’re going to use the manual form, tend to set that template up with information that doesn’t typically change on a monthly basis. They start with that information. But through this process, with so many modes of communication and reasons for communicating back and forth, you want to make sure that the information is up to date. 

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  13:54
Is the contact information someone specific, or can it be anyone at my institution?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  14:00
It can be anyone at the institution, but you want to make sure that it’s someone who is tied to the 1502 reporting task. Typically, it is the person who performs that task every month, or maybe the manager or supervisor of that area. But typically, it does need to be a specific person.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  14:17
What are some of the other common mistakes that are made?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 14:19
The accuracy of the information, as we talked about before, there’s some really important columns where you want to make sure that you’re providing accurate information. For those that are providing the information manually, you want to make sure that you do have it proofread before it’s submitted. Because if there are errors, let’s say with the account number because they should all be ten digits. If one of the digits is left off or there’s a transposed digit, you want to make sure that those things are verified beforehand because any errors in that report are going to cause delays.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  14:53
We’re talking a little bit about disbursement, and you mentioned earlier the disbursement should be equal to the total amount of the loan. What happens if it isn’t, and I want to disperse less money than what I was guaranteed. What happens in that space?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  15:08
At this point, the 1502 report is to disclose the amount that was dispersed, which should be equal to the amount that the SBA approved. If there are any changes to the amount, you can go into E-Tran and decrease the loan amount so that the SBA’s records will then match the records that you’re sending in through Colson Services.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  15:28
Tell me more about other common things that are on your mind?

Lori McCausland, Senior Associate, J.R. Bruno and Associates 15:31
You want to make sure that your interest paid to date is correct in your initial filing - actually all filings. But your initial filing has the date column that will tell the SBA what date you dispersed that loan in full. You want to make sure that the loans are fully dispersed, unlike 7a loans, where the loans need to start being reported as soon as the SBA approves the loan, even if the loan wasn’t dispersed yet. With PPP loans, the first reporting is not until after they’re fully dispersed.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  16:02
Thank you, Lori, are there any other items that we may have missed or any additional guidance that you have for us and our lenders?

Lori McCausland, Senior Associate, J.R. Bruno and Associates  16:10
When it comes to 1502 reporting, one of the most important things is to read the instructions on what the column information needs to be. But you don’t want to overthink the report. It’s easy to read things into those columns and make them more complicated than they are. In addition to that, you want to make sure that the information is going into the correct columns. Sometimes, when you have blank columns, you want to make sure that you’re moving into a new column when you’re inputting the information that is required for that particular report. You also want to understand that if there are exceptions, you need to correct them as soon as possible. Exceptions do cause delays, especially in the face of being paid your processing fee. You want to make sure that it’s going to be paid in a timely fashion.

Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer  16:56
Thank you, Lori, for your time and discussion today. You’ve provided really great information as an insider and an expert on SBA lending. I know it has and will be informative and helpful for all of our listeners. Thank you very much.

Greg Corombos, News Director, Radio America  17:10
That’s Wolters Kluwer Banking Segment Leader, Samir Agarwal. Wolters Kluwer is the host of this podcast series. With over 20 years of experience, Wolters Kluwer is a market leader in SBA lending technology with its TSoftPlus software solution. They offer solutions that support all SBA lending, including both Paycheck Protection Program origination and forgiveness. Additionally, their experts assist clients with evaluating PPP loans for compliance and navigating the forgiveness process. For more information and additional guidance, visit WoltersKluwerFS.com/PPP or call 800-397-2341 and then press the number one. 

Our subject matter expert today was Lori McCausland. Lori is with J.R. Bruno and Associates, the longest-running consulting firm of its kind in the United States, featuring a diverse team of SBA experts. The JRB team acts as an extension of the lender staff, serving as consultant, lender, service provider, or staff trainer, assisting lenders in every phase of the SBA process. You can contact Lori directly at 442-500-8227 or by email at [email protected] You can also reach J.R. Bruno directly at 855-JRB-4SBA, which is 855-572-4722. 

Additional assistance is available through the Small Business Administration @sba.gov. The SBA answer desk can be reached at 800-827-5722. We hope this podcast has answered many of your questions about 1502 reporting in conjunction with the Paycheck Protection Program. But our conversation is not over. Please join us again as we continue to take the mystery out of the Paycheck Protection Program. I’m Greg Corombus, and until then, thank you for listening.