Pandemic Prompts Closer Scrutiny of SBA Loans
If you’re trying to sell a business, expect bankers to scrutinize the deal more closely in the wake of the COVID-19 pandemic.
Ryan Stoll, an SBA Banker at Cadence Bank, N.A. specializing in Franchise, Business Acquisition and Real Estate Lending, spoke to the GABB’s guest on Tuesday, June 16, about SBA lending and the Paycheck Protection Program (PPP) program.
Cadence Bank, along with many others, is asking clients to get help from their CPA’s to gather the information they will need to apply for forgiveness through the PPP program.
The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. New SBA guidelines have loosened forgiveness restrictions, according to Forbes, to make it easier for businesses to receive partial loan forgiveness.
Borrowers can qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll, according to The Journal of Accountancy. The journal reported that a law signed June 5 lowered to 60% from 75% the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven. But while the original PPP rules allowed for partial loan forgiveness under the 75% basement, the new bill passed by Congress had language that could be interpreted as saying that if the borrower did not spend at least 60% of the PPP funds on payroll costs, none of the loan would be forgiven.
“We fully anticipate the forgiveness process to take us into the first quarter of next year with many of our clients,” Stoll said. “We have 60 days to review the forgiveness application, and the SBA has 150 days to make a ruling on the forgiveness application. We’re going to be working on PPP deals into 2021.”
Cadence Bank funded just under 4,000 PPP loans worth about $1.2 billion to clients and non-clients.
In response to a question from GABB President Dean Burnette about how the PPP program will affect acquisition loans, Stoll said banks are going to be doing enhanced underwriting, more due to COVID-19 than the PPP. Loan officers are going to want to be assured that any business up for sale is able to open and do business.
Banks will want to know what precautions businesses have taken and “if there are projections provided on a deal, we need to know how COVID-19 was taken into account for the projections,” Stoll said.
“We need to have from our borrowers contingency plans for how they would operate if the economy is partially or fully shut down again,” Stoll suggested. Brokers representing sellers should have year over year statements to show the impact of the downtown. “We do expect that businesses were substantially impacted in the downturn.” But if a business can demonstrate a return to normal, “that has appeased my credit officers.
In larger transactions, credit officers will want more equity from the borrower and want the seller to hold more paper, Stoll said. Some in the industry think some service companies are over-leveraged at this time. “So we’re looking for more equity and a larger seller contribution on those types of transactions,” Stoll said. “I wouldn’t be surprised if you’re seeing banks coming back with a portion of the seller note or all of the seller note being on a payment standby for some period of time.”
But Cadence and other banks are still lending, although many bankers are warmer to essential services businesses than non-essential services businesses, he said.
“Expect us to be coming back with very firm, very final offers when it comes to the structure of the equity,” Stoll said. “There may be some negotiation with rates, but as far as equity goes, the credit officer will be very firm.”
The Georgia Association of Business Brokers, the state’s largest and most prominent association of professionals dedicated to the purchase and sale of businesses and franchises, is holding brief weekly meetings online during the pandemic. Business brokers, bankers, business attorneys and other professionals join the weekly calls to ask and answer questions about buying and selling a business during the pandemic.
To join the GABB’s Tuesday meetings, please go to
Meeting ID: 955 0652 0094