Greg Corombos, News Director at Radio America 00:05
Hi, I’m Greg Corombos. Thank you for joining us for this special podcast series. In our first edition, we explained what you need to know about filing 1502 reports in connection with the Paycheck Protection Program, commonly known as PPP. In this edition, we’ll be examining important changes to the PPP, challenges that lenders are encountering, and other key provisions. Here to lead this discussion is Wolters Kluwer® Banking Segment Leader Samir Agarwal, and he is joined today by Lori McCausland, a Senior Associate with J.R. Bruno & Associates, to provide expert insights on this issue.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 00:43
Thanks, Greg. Welcome back, everybody. I’m going to provide a little bit of information about where we are now with the PPP phases one and two funding complete. We have about $511 billion in loan guarantees from the SBA. That’s across 4.5 million loans to small businesses throughout the United States with 5,500 lenders. Over the last few weeks, we’ve had about a $20 billion return, while many new loans have been trickling in. That’s about a net of $1 billion new loans in the last 30 days. What we know now is that there have been changes in legislation, and new bills are being passed to make the process easier. Some of those are the amount of time that borrowers have to spend PPP funds to remain eligible for forgiveness. That time has been extended from eight weeks to 24 weeks. The amount that must be spent on payroll expenses is lowered from 75 percent to 60 percent. Partial forgiveness will be honored when the payroll is less than 60 percent, as stated by the Treasury and SBA on June 11. The maximum amount forgivable will be limited to ensure that 60 percent is used for payroll. Employers may rehire or eliminate a reduction in employment salary or wages through December 31, and the loans will remain forgivable within the loan amount. These are called “safe harbors.” Another change to the program is that the six-month deferral payments have been replaced under the PPP loans with deferrals until the date on which the amount of the loan forgiveness is remitted to the lender. It will be no earlier than 10 months following the loan forgiveness covered period if the borrower fails to apply for forgiveness. We’ve also established a new minimum maturity of five years. It’s an increase to the initial two-year maturity date borrowers and lenders can both agree apply this to the existing loans. We’ve also eliminated a provision that makes PPP loan recipients who have received indebtedness forgiven ineligibility to defer payroll tax payments. There have also been two new forms, one for the borrower, one for the lender, also published on June 11. We dove into a lot of intricacies, and I want to focus a little bit more on the procedures for permission. I’ve heard from lenders that there is no clear guidance from Colson or the SBA as to entities or guiding lenders in two different manners. Lori, can you help us understand a little bit more around the two entities and how their approach and communications have been to our lenders?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 03:27
The two entities that we’re talking about are SBA and Colson Services, which is often referred to as the FTA or the Fiscal Transfer Agent. They do have two different focuses for many reasons, but with reference to this situation, their differences are based on guidance or lack thereof. The guidance from the SBA is that not only do you submit your initial report in order to initiate the payment of the processing fee, but after that initial submission, you will need to submit on a monthly basis. However, the Colson Services site states that although that may be a requirement, they don’t want you to submit any additional information until further guidance is given.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 04:12
Well, that’s a big difference. So, one is saying to report once and the other is saying use the same process for 7a where you’re reporting on a consistent basis. Do we know when some of that guidance will be cleared up?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 04:24
One of the things that I’ve seen is that while the initial reporting on PPP loans was between May 22 and May 29, they’re telling lenders that you will not need to report again in June. The only loans that you’ll need to report on in June are those that you’re still originating and dispersing, and those will need to be reported within 10 days of disbursement. I would recommend that you review Colson’s website and the SBA’s website on a regular basis to look for further guidance when it’s provided.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 04:59
What’s your best practice and advice around adhering to that?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 05:04
After your initial reporting between May 22 and May 29 for any loans that you dispersed within 10 days of that point, you’ll want to just make sure that you’re continuing to monitor the disbursement dates and the reporting requirements within 10 days of disbursement going forward. So, any loans that you’ve not reported with your initial reporting, you’ll want to make sure that within 10 days of disbursement, you are reporting on those, which will then initiate that payment of the processing fee for those newer loans.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 05:35
So, our lenders still getting payments or collecting fees on originated loans?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 05:41
Yes, they are; they’ve actually started making those payments for the loans that have already been submitted if there were no errors in the transmittal.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 05:49
Can you help me understand a little bit about that? When was the first time that the SBA started making payments or close and start making payments to lenders?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 05:56
Once those reports initially were submitted back in May, they did go through a process with Colson Services or often referred to as the FTA, the physical transfer agent. They went through a process of reconciliation, which I think took about two business days, and then they would submit that information over to the SBA and the SBA would then go through a reconciliation on their side, primarily looking to make sure the ACH information provided by the lender, as well as the certification had been answered to. Once that gets done, then the SBA, if everything else is entered accurately, the SBA would then set them up in stages. And if you’re looking to find out when you should be paid on a specific loan, as long as everything was input correctly, in E-Tran at the loan level, the SBA has established a date for the expected payment that the lender can review.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 06:52
There was a topic we brought up last time, which was around the loan amount and the dispersed amount matching. How important is that? Will I still get paid if those don’t match?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 07:02
One of the things that you’re required to do is fully disperse the loan, and the only way that the SBA can recognize that the loan is fully dispersed is if the amount that the SBA approved (because it’s 100 percent guaranteed), matches the amount that you dispersed. So, if the amount you dispersed for any reason is less than the amount that was approved on the SBA’s website. You would need to lower the amount of the approval to match the amount you dispersed.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 07:34
What if my borrower didn’t want the full amount? We’ve been hearing some stories around returns or re-application for a lower amount. How is that done?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 07:45
As far as the amounts being reduced, you’ll need to make sure that the amount that your borrower does want to receive is reduced on the SBA’s website. So, let’s say the borrower was approved for $100,000, and they decide they only want 80,000, or they feel they can only spend 80,000. After they’ve looked at their situation, what the lender will need to do is go in and reduce the amount of the approval on the SBA’s website for that loan down to the amount that was actually dispersed. That should be done before the funds are dispersed to the borrower. Because that way, when the disbursement is reported on your 1502 report, to initiate that processing fee payment, it will then match the SBA’s approved amount.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 08:30
Are there any timelines or guidance that we know for when Colson or SBA processes, or can I just send these in at any iteration that I wish to?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 08:41
After the initial 1502 report that was due between May 22 to May 29, again, when the lender disperses it within 10 days of that disbursement, they’re required to report that initial disbursement to the SBA. So, that can be done at any time after the loan is dispersed, and it does need to be fully dispersed.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 09:08
If I heard you appropriately, there’s a tracking mechanism that shows you when the ACH was approved. Can you talk a little bit more about that tracking mechanism and how lenders can use that to plan and engage when they’re going to collect their ACH payments?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 09:25
Yes, there are actually two ways you can do it. The first way is if you’re using the 1502 dashboard, you can enter the 1502 dashboard and look at your 1502 reporting summary. It will indicate to you all the loans that you’ve previously submitted your 1502 report on and if they were submitted successfully. One of the things you want to remember is that with the initial 1502 report at the end of May, those may have been for loans that were dispersed in April or May. For those of you who are familiar with the 1502 report and the dashboard, the way you look at your summaries are by month. For instance, if it stated five of 2020, that’s for your month-end, April of 2020. For any of those loans that you reported in May, but were actually dispersed in April, you’ll need to look at your 5/20 for the month ending 4/20 report and then again, go back in and look at 6/20 for the month ending 5/20. Also, after a few days, Colson Services does submit that information to the SBA. They go through a reconciliation of their data and then submit it to the SBA. Once the SBA receives and goes through their reconciliation process, you’ll also be able to see that on SBA’s website through E-Tran.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 10:48
May’s report will reflect April, and June’s report will reflect May?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 10:53
That is correct.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 10:54
Hot topic right now is all around loan forgiveness. There’s been a lot of discussion on the criteria, the requests around making the process easier. And while that’s ongoing. I want to learn a little bit more about the results and what we can expect once borrowers have filed for forgiveness. Specifically, Lori, I’m looking at partial forgiveness versus cancellations, and what does that mean when it relates to the 1502 reporting?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 11:21
Partial cancellations will be reported, number one, by going into SBA’s website and reducing the amount approved. That’s how you’re going to represent the partial cancellation - meaning that the borrower isn’t looking for the funds that they originally applied for; they’re asking for less than that. Number two, when you report on your 1502 report, initially, once you’ve dispersed on that loan, you’ll be reporting a lower amount than was originally approved, so that it will then match the reduction that you made on the SBA’s website. When it comes to forgiveness, those determinations are going to be made when the forgiveness applications come in, and I do expect that there’s going to be additional guidance in that area, including a new forgiveness application, because of the changes that were released on June 11.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 12:13
Are there any specific risks that we need to look out for?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 12:17
When it comes to the partial cancellations, you’ll want to make sure that the reduction in the approved amount that you’re inputting into the E-Tran system on the SBA’s website is going to be accurate, because once that reduction is made and the page is saved, you’re not going to be able to go back in and increase it. The only increases that SBA has granted are for those seasonal businesses who originally applied using the timeframe data that was originally processed and subsequently updated for those seasonal businesses that have their high season in the spring, or the summer, or the fall. Other than that, the loans have to be fully dispersed, right out of the gate, and there can be no additional amounts approved over and above that. So, when you reduce the amount, you want to make sure that it is understood that it cannot then be increased.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 13:21
This is one of those buttons you can’t unpush. So, what do you recommend to lenders as they’re talking to borrowers that maybe don’t understand this or think that there’s a way to undo anything?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 13:32
One of the things you want to discuss with them is really based on the information and the guidance that was provided on June 11. Because now, instead of there being an eight week covered period, it’s up to 24 weeks. So, some of those borrowers who are on the fence about whether they’ll be able to use the funds, you want to make sure that they understand that they now have an extended amount of time and that they have the ability to submit using 60 percent as the payroll portion factor as opposed to the 75 percent it was before. If the borrower does want to get that amount reduced, just make sure that they understand that it can then be increased later on.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 14:13
So, we’re talking about these clients and what they’re paying attention to, and not dispersing the loan fully or making adjustments. We talked about all loans need to be fully dispersed. What do we do when a client or a borrower comes in late and says, “Hey, there’s just no way I can’t spend all the funds in the time allotted, am I still eligible for forgiveness, or what happens to my loan?”
Lori McCausland, Senior Associate with J.R. Bruno & Associates 14:38
You may be eligible for partial forgiveness. In that case, the only amount that wouldn’t be forgiven is the amount that you weren’t able to spend, based on the parameters of the loan when you signed the documents and had the loan dispersed, you follow those parameters for repayment.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 14:56
This is a little bit of an operational gap where human error can occur. Let’s say, as a lender, I make a mistake; I don’t update one system or the other system. What are any other places that I can observe or catch the error, or how would I go about correcting any 1502 reporting errors?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 15:15
Depending on what the error is, if it’s an error in the Colson 1502 report where the columns were not filled in properly. For instance, if you’re indicating that the loan has been dispersed, but you didn’t put an ending balance, you left the ending balance on that loan to zero, that’s going to be a Colson error on the report because you know, your disbursement should be a full disbursement and it should match your new guaranteed ending balance. If those errors are made, there may be a window of time that Colson Services will provide where you can go into the dashboard and make those corrections.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 15:55
What should I expect if I had an error, or there was something wrong with the report when I submitted it? When should I expect this feedback from Colson on that? What’s the style of communication? Do they email me or call me? What happens when that takes place?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 16:09
If it happens on the Colson side, typically, you’re going to receive communication from Colson Services. And depending on how you’re set up for your regular 1502 reporting, if you’re also a 7a lender, you’ll receive the updates from Colson on your PPP loans the same way. Many lenders still receive faxes for that information. There are going to be times when you can go into the cost of services dashboard and make adjustments to the information that you provided. There is a short window of time for that, though. So, if you’ve missed that opportunity, you’re going to need to actually go back and resubmit all those loans that didn’t successfully get submitted and reported over to the SBA as if you’ve never reported them before. So, you’ll want to go back in and make sure that you’re looking at your loans on both the SBA side and the Colson side to make sure that those transmissions went through properly. If not, as I said, in some cases, you may need to have to resubmit those same loans as if you were submitting them for the initial time.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 17:15
So, if I hear you right, it does not assume that both entities have the same information and always check.
Lori McCausland, Senior Associate with J.R. Bruno & Associates 17:23
That’s correct because they’re actually looking for different things. On Colson’s side, they’re looking to make sure that you filled out all the required fields on the 1502 report properly. On the SBA side, they’re looking to make sure that your ACH information and your certification has been attested to.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 17:42
So, how do I know that the PPP loan is submitted successfully through the 1502 report?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 17:48
One of the things you’ll see from the SBA side is that your loan status will move from undisbursed active, undisbursed, to dispersed current. Then if you go into the individual loan, on the first page of the individual loan in E-Tran, you’ll see a section that reviews the fact that your ACH information has been reviewed, appears to be accurate, and that you’ve also answered the question about the certification. There will also be an indicator that tells you the date that the SBA expects to make that payment to you.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 18:22
Let’s say that all the 1502 submissions are tracking well, and what we’ve discussed here with the best practices are absolutely getting us the fees that must be paid. Let’s talk about servicing the loan during the 10 months after the borrower’s forgiveness application is submitted. What happens next?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 18:44
Once the borrower has applied for forgiveness, the lender will review the package. If it determines it’s eligible for forgiveness, they will submit to the SBA. Once the SBA has also reviewed the package and issued the amount of forgiveness to the lender, who will then inform the borrower of the amount that’s forgiven, which may be full forgiveness if the SBA determines that the loan can be fully forgiven, or partial forgiveness. As far as servicing goes, if there is an amount remaining after forgiveness, I’m assuming that it will be handled the same way as any other SBA loan. But I think that we’re going to need to wait for further guidance on that before we can be sure.
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 19:26
It sounds like there’s a lot of guidance that still needs to be published, Lori. Are there any other places that you can help us administer and work through the 1502 submissions or any other 7a loan questions that we would have?
Lori McCausland, Senior Associate with J.R. Bruno & Associates 19:43
As far as getting questions answered on the PPP program, one of the other alternatives to monitoring the websites would be to ask the questions directly to the SBA through their email address at [email protected]
Samir Agarwal, Vice President, Banking Compliance Solutions, Wolters Kluwer 19:58
Thank you, Lori. It’s been quite insightful, and I’m really appreciative of spending some time discussing this and learning a lot. Again, thank you very much for helping us understand this better and the procedures involved with 1502, as well as the changing guidelines on and best practices for administering and submitting. I know it has and will be informative and helpful for all of our listeners. Thank you very much.
Greg Corombos, News Director at Radio America 20:22
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 the TSoftPlusTM software solution. They offer solutions that support all SBA lending, including the Paycheck Protection Program for both 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 WoltersKluwer.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 & 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 a consultant, lender, service provider, or staff trainer, and 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 at 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 Corombos and until then, thank you for listening.