Congress is considering a new PPP. How a second stimulus can do better.
When the Cares Act was passed in March, I sent a note to my entire team: This has the potential to be a defining event for the company.
It was the understatement of the year.
In the months that followed, we processed over 250,000 loans for over 100 banks and credit unions, representing 5% of the entire paycheck protection program.
Achieving this PPP volume has not been easy for us or our partner lenders. We had spent the previous three years building digital lending software, which included API integration with the Small Business Administration. Launching digital lending solutions for banks is a challenge in normal times. Considering the complexity and pace of PPP – its rules changed very early on, making it a moving target – it has been intimidating. These were calls at 11:00 p.m. with partner banks who understood the immense pressure we were facing, followed by calls at 2:00 a.m. with the engineering team to make sure we were doing everything we could to make tomorrow a better day.
In the end, we adapted, small businesses got their funds, and hundreds of banks went through years of digital transformation in a matter of weeks.
Now, eight months after the original Cares Act was passed, more than 90 percent of U.S. small businesses have spent all of their relief capital, according to the National Federation of Independent Businesses. Their study highlights an urgent need for more help, with 75% of small businesses saying they would consider a second round of PPP funding if it became available.
The SBA closed the PPP to new loan applications in August after issuing more than $ 500 billion in potentially repayable loans. Congressional negotiators have considered renewing it, but have so far reached no agreement on further stimulus. Talks during the brief lame duck session, which opened on Monday, could change that. A bipartisan group of senators are preparing a $ 908 billion plan, including renewed P3 funding, in hopes of eventually passing the bill. If a deal can’t be reached by December 11, small businesses will likely wait for relief until the new administration and Congress arrive in January.
Congress has little room for error if it wants to save thousands of small businesses across the country. The demand for economic bailouts is increasing. If the floodgates finally open without proper planning, the situation could be more chaotic than in April.
To avoid a new wave of lending chaos, it is essential that banks have a full understanding of the upcoming stimulus package and are able to handle the rush. Failure to do so could lead to a massive bottleneck and potential lending crisis, which would be catastrophic for small American businesses.
Avoid a banking bottleneck. At the height of the PPP in April, my company, Numerated, was processing $ 250 million in relief funds per hour for small businesses in need, accelerating approvals to a rate of nearly three loans per second. We quickly exceeded our DocuSign cap due to the sheer volume of document package automation and electronic signature. That kind of pace is exactly what Congress should anticipate when planning the next stimulus package.
It is imperative that our banks are prepared and ready for the next round of PPP, and Congress and the SBA can facilitate this in several ways.
Upgrade E-Tran where possible. Throughout April, the SBA was hampered by its loan origination system, which crashed under the workload of the PPP application process. It was understandable the first time around given the incredible and unprecedented volume. Going forward, a second stimulus package must include dedicated support for the SBA’s technology infrastructure – through funding, engineering talent, server bandwidth, and other means – to avoid disruption. power outages occurred in April. We need to help the SBA improve E-Tran in every way we can in a very short period of time.
Obtain forgiveness. It’s hard to underestimate how complex the forgiveness situation has been for banks so far. Many of these loans are not straightforward; the first one we processed contained over 500 supporting documents for review. This complexity is one of the main reasons why we are still only at the beginning of the process. Today, the SBA has responded to approximately 5% of PPP loans on our remittance platform. For those who have yet to hear from the SBA, their finances are on hold while they wait for clarification on whether their loan will indeed become a grant.
If a second stimulus were to be adopted tomorrow, we would still have 95% of small businesses looking for advice on whether they can apply again. What if they haven’t received an answer yet or haven’t asked for forgiveness yet? What if the first loan was only partially canceled? Many banks tell us that they don’t want any more PPP loans on their balance sheets until they are sure that the existing loans are canceled. Borrowers have a similar feeling. They want to know if they will be forgiven before they take more. Completing the forgiveness process will make the next P3 cycle much easier for everyone involved.
Keep the same rules. The first cycle of PPP unfolded quickly and was adjusted on the fly. The priority was to get this program in place to start helping small businesses and refine the details later. At the time, it was the right decision. Today we have a precedent on which rules work and which do not. Next time around, assuming there is one, the SBA can make it easier for itself, banks and businesses to keep the rules largely the same for this next round of stimulus.
Last but not least, Congress must adopt the next stimulus package as soon as possible. PPP has always been meant to be a bridge for small businesses through the worst of the pandemic. The longer we wait, the greater the risk that these companies will close their doors for good. We are able to prepare the banks to help as many people as possible as quickly as possible, and it has to happen now.
Dan O’Malley is CEO and co-founder of Numerated.