Despite encouragement from banks and government efforts to streamline the process, many Paycheck Protection Program borrowers have still not applied for loan forgiveness.

Now that the PPP is closed, the U.S. Small Business Administration, which administered the program, has turned its attention to simplifying the forgiveness process, while banks, eager to recognize fee revenue, have prodded their borrowers to submit applications.

But with deadlines for repayments yet to come due, some borrowers may not see an immediate incentive for PPP loan forgiveness, analysts told S&P Global Market Intelligence. Some may be biding their time to see if the SBA makes any further changes to the forgiveness process, while others may never apply, they said. Over the course of the program, 11,492,021 loans were made worth $792.65 billion. As of Aug. 15, the SBA had forgiven $471.14 billion of PPP loans.

The process is "far from over," said Timothy Reimink, managing director at financial consulting firm Crowe LLP. Deadlines for starting to repay unforgiven 2020 loans are approaching this fall, while those for 2021 loans will stretch into 2022.

Particularly for smaller businesses, one possible reason for delays is that "the borrowers already have the money, [so] it doesn't provide any tangible benefits to the borrower" to seek forgiveness early, Reimink said, adding that about 10% to 20% of borrowers at Crowe's banking clients have not yet applied for forgiveness.

Preston Thompson, managing director and co-leader of the PPP practice at Ernst & Young LLP, said that across the large banks that his company represents, "north of 75%" of the loans have started or completed the forgiveness process.

While forgiveness is running fairly smoothly for those who do apply, "The challenge is figuring out which borrowers haven't gotten around to starting the process or which ones were never going to start the process," Thompson said in an interview.

Both Thompson and Reimink said their clients are working hard to get borrowers back in the door, reaching out through email reminders and phone calls.

"We're just trying to push people along," Thompson told S&P Global Market Intelligence. "It's difficult to see the mindset of those who haven't come in yet. Silence is hard to predict."

Keith Durkin, a partner at law firm BakerHostetler, said most of his clients have taken a wait-and-see approach to applying for forgiveness, given the numerous changes the SBA has made to the program over the past 18 months.

"They're waiting to make sure that the rules that SBA and [the U.S.] Treasury have set won't change," Durkin said.

SBA efforts

In recent months, the SBA has implemented rules in an attempt to expedite the forgiveness process, especially for smaller PPP loans.

In July, the agency issued guidance that allows lenders to use a COVID Revenue Reduction score for second-draw PPP loans of $150,000 or less when the borrower fails to provide the required revenue reduction documentation at the time of forgiveness.

That guidance also provided a direct borrower forgiveness process for lenders that choose to opt-in as an alternative method for processing borrower loan forgiveness applications for PPP loans of $150,000 or less.

That process included an online forgiveness portal that provides "a single secure location for all of its borrowers with loans of $150,000 or less to apply for loan forgiveness through the Platform using the electronic equivalent of SBA Form 3508S," the SBA said.

Two weeks after the portal's Aug. 4 launch, the SBA announced that more than 340,000 borrowers had used it to submit applications, and over half of those had been approved for partial or full forgiveness totaling $2.4 billion.

Banks' perspective

As the SBA works to smooth the path for borrowers, banks are reporting growing levels of forgiveness, but they say more progress is needed.

"We are pushing hard … calling individuals and small businesses to get them to apply for forgiveness because in some cases, the first-round individuals would be subject to repayment beginning in September of this year," WesBanco Inc. CFO and Group Head of Finance Robert Young said, according to a transcript of the bank's second-quarter earnings call. "[W]e really expect the bulk of the first round PPP customers to be gone by the end of the year."

WesBanco saw about $327 million in PPP loans forgiven in the second quarter, Young said.

Customers Bancorp Inc., one of the nation’s largest PPP lenders, said on its second-quarter earnings call that it had processed about 57,000 forgiveness applications so far for about $3 billion, according to a transcript.

That figure represents about 60% of its $5.1 billion in loan originations in the first round of the program, according to Samvir Sidhu, vice chair, COO and head of corporate development.

"Our borrowers have maintained a nearly 100% forgiveness rate on applications submitted," Sidhu said, noting that the bank has partnered with the SBA to process submissions made through the government's new portal.

Meanwhile, Umpqua Holdings Corp. reported improving loan forgiveness figures on its second-quarter earnings call, with larger loans starting to move through the pipeline following the completion of enhanced scrutiny measures taken by the SBA for PPP loans of over $2 million.

"PPP forgiveness was accelerated towards the back half of the quarter as the SBA processed approvals for PPP loans over $2 million at a faster pace than in the previous months," President and CEO Cort Lane O'Haver said, according to a transcript.

"In regards to PPP loan balances, the decrease of $667 million was primarily related to forgiveness process during the quarter," he said.

Trade group talk

The Consumer Bankers Association voiced support for swift forgiveness and praised the SBA's efforts to that end.

"New tools like the COVID Revenue Reduction Score will streamline this process even further," CBA spokesperson Billy Rielly said.

The American Bankers Association said banks would continue their efforts.

"It is encouraging to see the pace of loan forgiveness increasing, and we know that many banks have their own platforms to help expedite the process," the ABA said in a statement. "We encourage all borrowers to apply for loan forgiveness as soon as they are eligible, and to work with their bank to see this process through."