PPP forgiveness and other COVID-19 concerns creating a perfect storm?

The U.S. Small Business Administration has indicated that financial institutions (including credit unions) under $10 billion in assets have stepped up and collectively have around $60 billion (about a third) of the second-round Paycheck Protection Program funds under their management.

To best serve the interest of their small-business members and themselves, credit unions that took on these loans must work to ensure that these debts are forgiven and not rolled over into low-yielding two-year loans that may need to be refinanced to be repaid.

Without a doubt, careful recordkeeping will be critical to justify forgiveness. There will be lots of borrowers reaching out for help, and providing clarification will be a very challenging component of the servicing responsibilities for these loans. (Some companies are offering assistance with this process, such as—but certainly not limited to—Jack Henry, Abrigo and Capiform.)

In addition to processing the forgiveness and rollover loan components of PPP, credit unions also need to be developing their game plans for the likely significant rise in the levels of nonperformance in their consumer and business loan portfolios. Add these concerns to declining net interest margins caused by the unprecedented low interest rate environment and the decline in transaction-based fee income coming from the pandemic-driven slowdown in the economy, and we have a perfect storm scenario.

 

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