Banks scrambling to process Paycheck Protection Program loans will soon have to parse borrowers’ spending data to determine whether those loans will become grants. This is a stipulation for small businesses using the funds for approved purposes, such as payroll and rent.  

“We don’t have guidance from the [Small Business Administration] at this time on how this will work,” said Josh Pape, chief banking officer at Citizens Bank of Edmond, an Oklahoma-based bank that has processed more than $19 million in requested PPP loans. “We will fund loans into the existing customer account, but the burden is on the customer to use the funds the right way.” 

With limited guidance from the SBA about how the loan forgiveness process will work, many banks and their clients are resorting to manual processes like spreadsheets — and even their checkbooks — to keep track of their spending. Until the administration rolls out a more concrete plan, banks are left guessing when it comes to the best advice they can give their clients. 

For many banks, the pace at which the SBA puts out guidance is dizzying. “It definitely presents challenges when you’re rolling the guidelines out as you go, but never let perfect be the enemy of good,” said Greg Poehlmann, senior vice president at 44 Business Capital, the SBA lending arm of Boston-based Berkshire Bank, which has $13.2 billion in assets.  

It’s been a step-by-step process as Berkshire tackles the “monumental task” of disbursing PPP loans, Poehlmann said. After the team solidified a PPP application-intake process, the focus shifted to closing and funding the applications. “Once we close and fund, let’s turn again and evaluate resources on how we’re going to look at this forgiveness aspect and let’s look for guidance from the SBA,” he said.  

Ultimately, the “onus and certification is really going to be on the customer,” Poehlmann said. “Because it’s a borrower-certification program, let’s disburse the whole loan and let’s put the onus on the borrower to come back and provide us the proper documentation for forgiveness.” 

Happy State Bank, which has $3.8 billion in assets, does not yet have a process in place to monitor the usage of the PPP funds, CEO J. Pat Hickman said. The Amarillo, Texas-based bank has put a special code on the notes so it’s easy to identify PPP loans in the future, said a representative. Meanwhile, Bank of Franklin County, a Missouri-based bank with $273 million in assets, is having PPP borrowers open a new checking account so the bank can clearly see how the funds are used.  

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With limited guidance from the SBA to date, banks are pushing out the information they do have to customers. Borrowers are to use the funds for payroll costs, interest on mortgages, rent and utilities if they want the loan forgiven. According to the SBA website, 75% of the forgiven amount must go to payroll. Banks are advising clients to document how they spend the loan funds so they can demonstrate this when applying for forgiveness. 

“You need to communicate with people what the rules are,” said Brian Hagan, Florida market president of First American Bank. “We are developing communications to go out to borrowers to explain what is expected with the money and how forgiveness will be established.” 

Without explicit guidance from the SBA, however, banks are largely left to wait and see how the forgiveness process will function.