How Utility Bills Facilitate COVID-19 PPP Loan Forgiveness and Highlight Credit Risks
Ma-Keba Frye | April 14, 2020 | Credit & Lending
As the COVID-19 crisis lingers, the U.S. government has been working to ease the financial burden for businesses across the country. On April 3rd, the federally funded Paycheck Protection Program (PPP) launched, allowing small businesses to apply for $349 billion in potentially forgivable loans from banks, credit unions, and fintechs. Funds from the program will be critical for allowing small business owners to continue paying their employees and to cover other business expenses in the wake of the crisis.
To qualify for the PPP, business owners must employ less than 500 people and have a general idea of their payroll costs. Loans under this program can also be forgiven if the borrower:
- Uses the funds for payroll, rent, utilities, mortgage payments, or insurance and healthcare premiums, and
- Keeps employees on payroll for at least eight weeks after receiving the loan.
While the Paycheck Protection Program offers the promise of much needed relief, financial institutions must navigate uncharted territory – not without its obstacles.
Roadblocks facing lenders
With inconsistent federal guidance and an uncoordinated effort, the program and application process is proving to be complicated for lenders and borrowers. Loan application systems have been inundated with more traffic than usual, and some banks have been scrambling to receive Small Business Association (SBA) accreditation in order to process these loan applications and meet new demand.
In addition to incomplete guidelines, lenders have been concerned with the possibility of inaccurate data and fraudulent loans. To mitigate risks, many banks have limited PPP applications to current customers to reduce the need for identity verification. As an added complication, to protect their margins, lenders will need to monitor these accounts even more closely as the expected recession approaches.
How lenders can navigate the Paycheck Protection Program
To comply with PPP loan requirements for approval and forgiveness, lenders will need to gain better visibility into borrower information. Fintech startup Plaid currently allows small business owners to download their payroll data and share it directly with banks through the Plaid API. To expedite the process during the shelter-in-place, Plaid is also working on a product that will reduce the payroll portion to just a few minutes.
Even more challenging than payroll information is access to rent and utility payment data, whether for assessing initial credit risk prior to funding loans or later for verifying how funds were used for loan forgiveness. Lenders can rely on platforms like Esusu to collect data on borrowers’ rental payments through Esusu’s partnership with Equifax.
Business utility payment history can also be accessed through Urjanet’s alternative credit data platform, enabling lenders to extend lines of credit to new applicants, not just current customers. In addition to using historical payment history to assess credit risk, access to aggregated utility data is now critical for verifying how PPP loan funds are being spent, thus avoiding fraud and accurately calculating eligibility for loan forgiveness.
LEARN HOW UTILITY PAYMENT DATA IS INCORPORATED INTO PPP AND CREDIT RISK MODELS
Utility data can provide additional insights
Most small businesses have anywhere from two to five utility bills that they pay monthly. Paying these bills on time each month shows that businesses are responsible and want to avoid late fees and cutoffs. On the other hand, slower payments of utility bills and other accounts that are routinely delinquent could be a sign of poor money management or growing financial woes.
Insights like these can help lenders reveal new customer opportunities. Many businesses will hopefully be able to survive long-term as a result of the assistance. Over time, coupling this data along with traditional credit data is highly predictive and can help define offers that align with the borrower’s true risk profile. Viewing this data in aggregate on an ongoing basis can help lenders keep an eye on the overall risk level of a small business.
Viewing this data in aggregate on an ongoing basis can potentially help lenders keep an eye on the overall risk level of a small business.
Utility data also has the potential to serve as a leading indicator of business health, particularly for industries where energy consumption is directly tied to productivity like manufacturing or a car wash. Steady increases in energy and water consumption could indicate that the business is expanding production to meet increasing demand. Decreases in consumption could be telltale signs that the company’s business has slowed.
To make decisions confidently, data must be credible and easy to use. One of the best ways to collect this data is directly from the utility service provider. Urjanet offers a quick and easy way to collect utility payment data month after month. Not only does this eliminate manual effort on the part of the business to download and submit bills each month, but it also reduces the risk of fraud by collecting data directly from a verified source.
Ready to start exploring utility payment data for your credit risk assessment? To learn more about how it works, request a demo today.
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About Ma-Keba Frye
Ma-Keba Frye is a Content Marketing Associate at Urjanet, assisting with content development and execution. When she's not writing, she enjoys reading, listening to music, and volunteering.