Independent Banker - August 2021 - 23

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eligible purposes and 5) good faith
certifications.
For each, community banks should
document and maintain records that
are applicable to each decision and
calculations relied upon for requests for
loans and forgiveness.
The audit scope should cover SBA's
interim final rules, frequently asked
questions and procedures. ICBA has
dedicated resources on its website
for PPP Q&As, loan forgiveness and
loan review, and has conducted a
number of interactive webinars about
PPP developments.
The SBA confirmed it will review
every PPP loan greater than $2 million
to determine loan forgiveness, but
community banks are encouraged to
review all PPP loan files regardless of
loan amount.
" We should take the prudent
approach and assume every loan
could be subject to review or scrutiny, "
Kendrick says. " We've learned from
bankers that many small-dollar loan
forgiveness requests have been held
up pending review, and there already
have been instances in which PPP loans
have been reviewed and have not been
fully forgiven. "
He notes that policy and procedure
changes were needed, such as whether
a bank would lend to customers or
noncustomers and adherence to
regulatory rules. The loans and resulting
deposits have caused some bank balance
sheets to become quite large, and some
" It's important for community banks to
gather and maintain robust documentation
from applicants and borrowers to support
applications for PPP loans and forgiveness. "
-JAMES KENDRICK, ICBA
have bumped up against loan-todeposit
and regulatory capital ratios.
Management should be prepared to
articulate to auditors and regulators
the flow of PPP funds and their impact.
QUICK STAT
57.5%
of all PPP loans were made by
community banks
Source: Small Business Administration data
Working with borrowers
While many PPP loan applicants
are current bank customers, some
were new customers. The energized
environment surrounding PPP
lending and the pandemic in general
should heighten a community
bank's attention to potential
compliance issues, such as customer
due diligence and identification,
suspicious activity and fraud
prevention. The SBA offers guidance
specific to the Bank Secrecy Act (BSA)
and anti-money laundering (AML) in
its frequently asked questions.
The onus is on borrowers to show
that they qualify for loan forgiveness.
Community banks should ensure loan
files are fully documented to prepare
for and process loan forgiveness
requests. Borrowers must submit
documentation and certifications;
falsified records expose them to
investigation and possible prosecution.
The Department of Justice
investigates, and the SBA audits,
companies and individuals who
qualified for-or attempted to qualify
for-PPP money for which they were
not legally entitled. The focus is to
confirm true and accurate borrower
certifications. That may include the
number of employees, the amount of
the borrower's payroll and whether
the loan was necessary to support
ongoing business operations. While
SBA guidance in its interim final
rules states that lenders may rely on
borrower representations, community
banks need to ensure that files include
supporting documentation for the
borrower's certifications.
Prior to the PPP, community banks
were funding 60% of small business
loans across the country. According to
SBA data, community banks provided
$2.8 million in PPP loans. That's
57.5% of all PPP loans and 48.1% of
all the PPP loans that went to U.S.
small businesses. These loans made
it to businesses in communities of all
kinds, including 98.2% of low-income
or economically distressed counties,
96.6% of rural counties and 92.4% of
urban counties.
" It's important for community
banks to gather and maintain robust
documentation from applicants and
borrowers to support applications
for PPP loans and forgiveness, "
Kendrick says. " Loan reviews and
internal audits should cover all loans
regardless of size. " 
Mary Thorson-Wright is a writer in
Washington, D.C.
independentbanker.org Q 23
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Independent Banker - August 2021

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