On April 10, 2020 it was reported that in the first week the Paycheck Protection Program was in effect, Fifth Third Bank received 33,000 Small Business Loan Applications. They normally process 300 SBA applications per year.
The CARES Act: What it means to small business
That amazing statistic is representative of the entire commercial lending space as a result of the passage of the CARES Act, an approximately $2 trillion coronavirus response package intended to mitigate the effects of COVID-19 on the U.S. economy. There is approximately $377 billion in the program earmarked for small business in the form of the Paycheck Protection Program (PPP).
Almost immediately following the act going into effect there was an onslaught of SBA loan applications with lenders nationwide. Many lenders focused first on lending to existing clients but they are also managing a significant number of applicants that are either brand new to them or worked with them far enough in the past that their records are severely outdated. In other words, lenders are trying to do their due diligence on tens of thousands of brand-new borrowers. And if that wasn’t enough, there is pressure to approve as many appropriate loans as possible before the PPP funds are gone.¹
This would be the tallest of orders even in a normal set of business circumstances. But COVID-19 has required dramatic shifts in the way people work, including those at financial institutions. Loan departments are working remotely and with reduced staff.
One of the primary requirements of the PPP is that the business had to have been in operation on February 15 of 2020. By including this requirement, would-be fraudsters or organizations just now incorporating will not able to access funds that are intended for established businesses impacted by COVID-19 with payrolls to protect and rent to pay. Therefore, each loan application essentially necessitates a Business Entity Search to ensure the applicant was in business on February 15 and was in good standing at that time.
Business Entity Data contains various data points on each entity in each State. One of those data points is the entity status. Each State reports entity status slightly differently, but one option is “good standing” (or equivalent), showing that the entity is up to date with any required reports, tax payments or other statutorily required items (e.g., some states lump in things like business licenses). Looking up status in the business entity data will provide the info of whether they are compliant/in good standing or not as of the point when the data was last updated. This information is a great guide in cases where it could take days — or weeks — to obtain the good standing certificate, which simply certifies the data that was located in the aforementioned entity search.
Lien Solutions can provide data from both, but the faster option is the Business Entity Search.
The advantage is clear: handing off an otherwise manual process that can consume days-worth of an FTE’s time to a partner that can automate the process and allow lenders to concentrate on processing the loans they have in front of them (not to mention spending the time to fully understand nuances within the CARES Act).
Paycheck Protection Program (PPP) requires more diligence from lenders
The PPP is proving to have a learning curve for everyone in the financial space. We’d love to help with whatever unique lending situation you may be experiencing and show you how to utilize our Business Entity Search for CARES Act. Give us a call today at (800) 833-5778 or contact us via email at [email protected].
1 Ongoing discussions at the federal level indicate the possibility of more funding for small businesses, but nothing is definite as of the writing of this post.