US Lenders Score Small Business Relief, Accounting Help in Pandemic Package

December 22, 2020 Updated: December 23, 2020

WASHINGTON—The long-awaited nearly $900 billion U.S. pandemic aid package will help banks by boosting borrowers’ finances, easing a key small-business lending program’s rules and by granting accounting relief on deferred loan payments, lobbyists and analysts said.

After months of partisan wrangling, the U.S. Congress over the weekend struck a deal on another pandemic aid package, including one-time $600 checks for most Americans, extended unemployment benefits of $300 per week, and $284 billion more for the small business Paycheck Protection Program, or PPP.

Passed by lawmakers late on Dec. 21, the package includes a number of measures that the industry, potentially facing more than $300 billion in losses on souring loans through 2022, according to consultancy Deloitte, had lobbied for aggressively to bolster their books and help their customers.

Those efforts extended through the weekend, with industry lobbyists making last-ditch calls to lawmakers to push for their asks in the final text, lobbyists said.

Rob Nichols, chief executive of Washington trade group the American Bankers Association, said on Dec. 22 that the deal should provide much-needed relief to families and workers.

“Importantly, this agreement contains several ABA-supported provisions … that will allow banks to provide additional help to individual and business customers under financial stress from the pandemic,” he said in a statement.

Among the biggest wins is a new streamlined process for writing off PPP loans. Under the program, lenders have dished out more than 5 million loans worth a total of $525 billion, on behalf of the government.

Bank groups had complained that the documentation the government required to forgive those loans was too onerous and risked leaving borrowers with crushing debts and lenders with millions of high-risk, barely profitable loans.

The bill simplifies forgiveness for loans of $150,000 or less, allowing businesses to attest on a one-page form that they used the funds for payroll and other business expenses. It also allows those expenses to qualify for deductions, simplifying tax returns for millions of borrowers.

It also tightens language promising lenders won’t be held responsible if borrowers break the PPP rules, pledging no enforcement action may be taken against the lender if they acted in good faith and complied with relevant federal and state regulations. That should comfort lenders who had fretted they may be swept up in a crackdown on PPP fraud.

“It’s an improvement over the current PPP program and has many fixes that needed to be addressed, and it extends some relief for the community banks and lenders to continue supporting small businesses,” said Paul Merski, an executive vice president at the Independent Community Bankers of America.

That relief included a year-long extension of a provision, originally due to expire on Dec. 31, which has made it easier for banks to give borrowers leeway on repayments by waiving the usual accounting treatment for modified loans.

The median rate of deferred loans relative to assets for U.S. banks tracked by S&P Global was 1.6 percent in the third quarter, down from 5.3 percent in the prior quarter, as borrower stress eased. But that rate could rise again if the economy underperforms.

Had the waiver expired, banks would curtail their loan modification programs rather than incur the increased capital charges and regulatory scrutiny that come with the normal accounting treatment, said lobbyists.

“This will be very helpful for credit unions and banks working with borrowers,” said Ryan Donovan, chief advocacy officer at the Credit Union National Association, who had pushed for the extension.

By Pete Schroeder and Michelle Price