With another round of the Paycheck Protection Program starting this week, lenders will have to manage the process for new loans while still getting through last year’s forgiveness applications.

But even with hundreds of borrowers still in the forgiveness phase, community banks expect to avoid the chaos that marked the PPP’s rollout last April.

“I don’t anticipate any significant problems with not only entertaining forgiveness and origination of PPP, but also simultaneously working on the traditional loan transactions and cash management relationship building that we do as a commercial institution,” said Paul Larsen, chief lending officer at Torrington Savings Bank.

The legislation passed in December that authorized another round of PPP funding also clarified some concerns borrowers have had with PPP forgiveness, including allowing more loans to go through a simplified forgiveness process, likely easing the burden on both borrowers and banks in the coming months.

With the new round of $284 billion in funding allowing certain small businesses to request a second PPP loan, while also opening up the program to some organizations that were not eligible last time, community banks have started to hear from customers.

“I’m glad that the money is targeted toward those that need it most,” said David Rotatori, president and CEO of Naugatuck-based Ion Bank. “We’re seeing a fair amount of demand already.”

Waiting for Forgiveness

Community banks have already seen the PPP forgiveness process, which began in August, go more smoothly compared to the program’s launch in April. Still, a significant number of borrowers have yet to apply for forgiveness.

Because legislation in June gave business owners the option to extend the period covered by the loan from eight to 24 weeks, some business owners would have just reached the end of the coverage period in the fall or winter.

Ion Bank has received forgiveness requests for about half of the more than 1,600 PPP loans it processed. Of those forgiveness requests, the U.S. Small Business Administration has completed about 50 percent of them. Lenders have 60 days to submit a forgiveness application, and the SBA has 90 days to make a decision.

Jayne Kelly, Ion Bank’s executive vice president and chief commercial banking officer, said the bank’s credit department is handling the forgiveness applications, which are submitted through an online portal. The team is using a chat function to communicate with customers as they review the applications, a tool which Kelly said has proved effective.

Nearly 87 percent of the nearly 65,000 PPP loans in Connecticut were for less than $150,000, and some of these business owners waited before applying for forgiveness to see if Congress would authorize a simplified forgiveness process.

Simplified Process

The SBA and Treasury Department implemented a simplified application in October for loans less than $50,000, and then the COVID aid legislation signed late last month authorized a simplified application for loans under $150,000.

Kelly said the simpler process was good news for banks and borrowers.

“We’re also communicating out to our customers who haven’t applied for forgiveness yet that that streamlined process is now in place,” Kelly said.

Some businesses also wanted to see whether Congress would change the tax rules before calculating their forgivable loan amounts. Businesses originally could not deduct expenses on their tax returns if the borrower received forgiveness on PPP money used to cover those expenses. The most recent legislation allows the tax deduction.

The legislation also eliminated the requirement to deduct the advances businesses received through the Economic Injury Disaster Loan program from the forgiveness amount. Before the most recent legislation, a borrower’s forgiveness amount would be reduced by the EIDL advance, usually $10,000 or less, leaving the business owner expecting to repay that amount.

Larsen said Torrington Savings Bank did not start accepting forgiveness applications right away, waiting for more guidance from the SBA, including on EIDL advances. Before the rule change, the bank did end up completing just over a dozen forgiveness requests affected by EIDL advances. The SBA has said it would develop a process for these loans.

“There needs to be some reconciliation that needs to take place there, but not terribly troublesome,” Larsen said. “I would say all in all, the forgiveness portion of this program has been working just fine.”

Second Loans

The PPP reopened on Jan. 11, with CDFIs and other community financial institutions having exclusive access to the SBA’s portal for the first few days. The SBA limited the program at the outset as part of an initiative to address barriers that minority, underserved, veteran and women-owned businesses have faced in accessing capital during the pandemic.

Ion Bank plans to work with these businesses, Kelly said, adding that the bank also plans to process loans for organizations, including 501(c)(6) business associations, that were not eligible for the first round of funding. Funding is available until March 31.

Businesses that received loans last year can now take a second loan, though not all will be eligible. Businesses can have no more than 300 employees – down from 500 employees for first-time PPP borrowers.

They must also demonstrate at least a 25 percent revenue loss when comparing one quarter in 2020 to the same quarter in 2019. Rotatori said that because so many restaurants, hair salons and other businesses were closed for much of April, May and June, they would likely satisfy this requirement. He also expects nonprofit organizations to qualify for second-draw loans as well.

A change banks will see with this round is aimed at reducing fraud, an issue the government is still addressing from last year’s loans.

The SBA will no longer assign a loan number when the lender submits the application but instead assess the loan before approving it. This change from the first round will disrupt the speed and flow of the process, Kelly said. She added that the bank will work to ensure borrowers’ applications are completed correctly, including by having front-line staff reinforce requirements when speaking with customers.

Larsen said that despite the challenges at the outset of the PPP, customers have told him about the positive impact the loans had on their businesses.

“The way it all came together and the amount of capital that got put out into the economy was frankly remarkable,” Larsen said. “Largely, it was a big success, notwithstanding the distraction it’s been for