LDN - Business

U.S. lenders score small business relief, accounting help in pandemic package

[December 22, 2020] By Pete Schroeder and Michelle Price

WASHINGTON (Reuters) - The long-awaited $900 billion U.S. pandemic aid package will help banks by boosting borrowers' finances and easing a key small-business lending program's rules, lobbyists and analysts said.

In addition, they said, it will grant accounting relief to help banks sustain loan forbearance programs.

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 (PPP).

Due to be passed Monday evening, 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 help bolster their books and help their customers.

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

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

Bank groups for months had complained that the documentation the government required to forgive those loans was far 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 PPP funds for payroll and other businesses expenses. It also allows those expenses to qualify for deductions, simplifying tax returns for millions of borrowers and their lenders.

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A staff cleans the lobby inside Wells Fargo bank in New York City, U.S., March 17, 2020. REUTERS/Jeenah Moon

It also tightens language promising lenders will not 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. [L4N2I92PW]

"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% in the third quarter, down from 5.3% in the prior quarter, as borrower stress eased. But that rate could rise again if the economy underperforms.

Had the accounting 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 impacted by COVID-related economic disruptions," said Ryan Donovan, chief advocacy officer at the Credit Union National Association, who had pushed for the extension.

For more on the industry's wins and losses, see FACTBOX

(Reporting by Pete Schroeder and Michelle Price; Editing by Dan Grebler)

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