Setting up Paycheck Protection Loans

Overview

In light of the recent approval of the Paycheck Protection Program (PPP), PrecisionLender recommends setting up a specific product type for classifying these loans, and offers step-by-step coaching through our virtual assistant Andi. This allows for both pipeline tracking and Relationship Awareness product segregation in the loan portfolio. This article will cover how to setup a PPP loan in PrecisionLender that features these product updates.

 

In this Article

 

PPP Loan Assumptions

Below is a summary of the provisions issued by the Federal Government for the Paycheck Protection Program:

  • Loan must be originated before June 30, 2020.
  • Collateral and personal guarantees will not be required.
  • SBA loan and bank fees will be waived.
  • Rate = 1%, Term = 2 years, interest only up to 12 months.
  • The SBA requirement that the business is unable to obtain credit elsewhere will be waived.
  • The loans will not be subject to any prepayment penalty.
  • The SBA will reimburse lenders for PPP loan processing fees, based on the disbursed loan amount:
    • 5% for PPP loans up to $350,000
    • 3% for PPP loans greater than $350,000 and less than $2 million
    • 1% for PPP loans of $2 million or more
  • The loans will be non-recourse to the business owners except to the extent they use the proceeds for an unauthorized purpose.
  • Businesses will be required to certify that:
    • The uncertainty of current economic conditions makes the loan necessary
    • The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.
    • It does not have an application pending, or it has not received a loan, under the PPP for the same purpose.

 

PrecisionLender Pricing Strategy

To set up the product, we recommend the following:

  • Include Single Pay loan and Amortizing loan payment type options 
  • You may wish to add a new Origination and Servicing channel to account for the labor-intensive nature of these loans both at origination and for the forgiveness process.
  • Modeling the Capital Exposure at 0% due to the Government Guarantee.
  • Setting a Collateral type of unsecured as the product default.
  • Setting a Government Guarantee of 100% as the product default
    • You may wish to have a slightly lower recovery factor on the guarantee to account for any perceived operational risk.

Once the product has been set-up, when pricing the opportunity:

  • We recommend a 6 months interest-only period. You may want to model a shorter term, a prepay rate, or assume some principal reduction due to the forgiveness aspect.

shows an example of an amortizing loan with 6 months interest only period

 

  • The reimbursement amount should be entered as fee income.

shows the reimbursement amount entered as fee income and teh default product assumptions for collateral and guarantees

 

PrecisionLender Relationship Awareness Strategy

PrecisionLender recommends creating a specific product, such as Paycheck Protection, in your core system for PPP loans. Once the loan is booked and feeds into your data set, we will begin recognizing these deals as part of your existing book of business.

Relationship Awareness will focus on the residual 1% interest rate loan that is not forgiven within the program. Through the product setup in pricing, we will be able to utilize the appropriate financial details - including origination and servicing, channels, capital exposures, risk, and unsecured collateral.

To support this process, let us know that you've added the new product and the RA team will partner with your data experts to confirm the need for mapping updates and changes to your data set.

 

If you have any questions about setting up your PPP product or RA configurations, please reach out to our support team.