More banks opt to sell PPP loans as heavy lifting nears

More and more banks are eager to unload their Paycheck Protection Program loans — and some nonbanks are more than happy to take them off their hands.

The Loan Source, a nonbank small-business lender in New York, said it has acquired more than 20,000 PPP loans, with more than $2.9 billion in outstanding balances, in recent weeks. The company, which has finalized deals with 14 lenders, has more in the works.

“There’s a lot of demand for our program,” said Luke Lahaie, the chief investment officer of The Loan Source, a special-purpose entity formed to service purchased PPP loans. “We’re talking to [lenders] every single day.”

The $1.3 billion-asset Northeast Bank in Portland, Maine, the $2.5 billion-asset Southern First Bancshares in Greenville, S.C., and the $5.3 billion-asset Bryn Mawr Bank in Pennsylvania have disclosed deals with The Loan Source. The other lenders have yet to publicly announce their sales, LaHaie said.

Many sellers are shedding the loans to avoid the cumbersome forgiveness process, while others say the paycheck program didn't align with their strategic interests. For nonbanks, buying the loans brings in revenue at a time when more conventional business is hard to come by.



Other banks have disclosed plans to shed their originations under the $669 billion program to assist small businesses hurt by the coronavirus pandemic.

New York Community Bancorp in Westbury moved its $103 million PPP portfolio to available-for-sale status in the second quarter, indicating that it will look for a buyer. The $54 billion-asset company has yet to announce a sale.

PPP loans made up only 0.2% of New York Community's total loans on June 30.

New York Community is primarily a commercial real estate lender, and property owners “were not eligible to tap PPP funds,” its chief financial officer, Thomas Cangemi, said during a quarterly earnings call with analysts. "We stepped in locally as a community player. However, we did not do a lot of PPP" lending.

A New York Community spokesman was unavailable for additional comment.

Through Tuesday, the Small Business Administration, which is managing the Paycheck Protection Program, had approved 5.1 million loans for $522.2 billion. The program, which began on April 3, is set to shut down on Saturday, though Congress is considering multiple proposals that would extend it.

Republicans have proposed increasing available funding to $190 billion and letting companies hit especially hard by the coronavirus pandemic apply for another loan. Democrats have suggested allowing PPP to operate through the rest of the year.

PPP loan proceeds spent on rent, mortgage interest, salary and benefits and other basic operating costs are eligible for forgiveness, though many have criticized the application process as overly complex. A shorter "EZ" version of the application is still time-consuming for lenders, LaHaie said.
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The shorter version is "not that different" from the longer application, LaHaie said. "There are a lot of data points, and lenders still have to upload all the supporting documents. The name is a little misleading."

Fountainhead Commercial Capital, another nonbank small-business lender, is also buying PPP loans. The Lake Mary, Fla., company agreed last month to buy “substantially all” of the $556 million PPP loans originated by the $1.1 billion-asset Greater Nevada Credit Union in Carson City.

Fountainhead is in advanced talks with several potential sellers, “and we’re certainly interested in chatting with others to buy more,” said CEO Chris Hurn.

As for The Loan Source, it’s largely refocused its operations on handling PPP loans.

LaHaie said his team has more than 60 full-time staff dedicated to servicing the loans and assisting borrowers with forgiveness. The Lending Source recently activated its forgiveness portal, and more than 900 borrowers have logged in to begin the process, he said.

The Loan Source relies on a correspondent relationship with Northeast Bank for access to the Paycheck Protection Program Liquidity Fund.

The Loan Source has the scale that many small banks lack to handle servicing and forgiveness, said Rick Wayne, Northeast Bank's president and CEO.

Northeast has so far earned $8.5 million in fees for its services to The Loan Source.

“The economics speak for themselves,” Wayne said. “Things are going well. … It’s been a great arrangement for us.”