For five days, Steven Marks, who runs a counseling practice, has waited anxiously to apply for a loan under the new federal Paycheck Protection Program. Vectra Bank Colorado, his commercial bank, still hadn’t opened its online loan application site as other banks pumped out billions of dollars in emergency loans.
“The guidance they gave us is it will be first-come, first-served,” he said. “We are waiting and we can’t apply. The funds might not be available,” he said.
Like someone treading water in the ocean after a big ship has capsized, he worries all the rescue boats will fill up and zoom off. He can’t help but have a sinking feeling.
“I can sympathize very much with small businesses,” said Don Childears, CEO of the Colorado Bankers Association. “They can see the life preserver, but they can’t reach it.”
Congress has made $349 billion available for loans to small businesses that are struggling financially because of the outbreak of COVID-19. Small businesses with fewer than 500 employees can borrow up to 2.5 months of payroll. If they use at least 75% of the funds for employee expenses, the loan is forgivable.
Nonprofits and churches can borrow money through the program as well. Businesses backed with private equity can’t, and the question is still open on agricultural businesses. Come Friday, sole proprietors and gig economy workers can apply, setting off another wave of demand.
As of 2 p.m. on Tuesday, the Paycheck Protection Program had issued $70 billion in loans to 275,000 borrowers through 3,200 lenders nationally, Childears said, citing Small Business Administration numbers. To put that in perspective, the SBA backed $28 billion in loans all of last year. And loan volumes are expected to go up as more banks join the program.
Program rules came down only a few hours before loan applications opened up on Friday. Some banks rushed forward, overcoming concerns they might make bad loans that the SBA wouldn’t back, while others chose to wait and get guidance.
“We wanted to do it right,” said Bruce Alexander, president and CEO of Vectra Bank Colorado. “My feeling is sometimes you have to go slow to go fast. We are taking an extra couple of days to make sure we had the proper information.”
The bank’s commercial loan officers have been reaching out to customers needing help and processing loans manually for them. The bank has processed PPP loans, Alexander said, but not at the volume that the automated system will permit.
“All of us in the industry are participating in the program. Our job is doing everything we can to save our small-business customers,” said Alexander, noting the level of frustration is high on many fronts.
Marks said he has banked with Vectra Bank since 2004 and has had a good relationship with the bank. But he has been frustrated with notices on the bank’s website saying that an online application portal was imminent. The site promised to go live Tuesday afternoon, which it appears to have done.
“What I am concerned about is that all of the customers of the bank will go in at once and crash the site,” said Marks, who owns Front Range Counseling, which has two offices.
Borrowers are encouraged to stick with the banks they already have a relationship with. Switching to a new bank will require identity verification and documenting payroll expenses and other financial information. That will prolong a loan approval.
But some businesses have no choice but to start swimming toward other banks. Colorado’s largest bank, Wells Fargo, has already reached its lending limit of $10 billion because of a regulatory cap on how much it can grow.
Wells Fargo made $83 million in 7(a) SBA loans last year in the state, nearly as much as the next three largest SBA lenders made combined. Unless regulators provide a reprieve, thousands of its Colorado customers may find themselves desperately reaching out to competitors, who are desperately trying to rescue their own customers.
Given that the loans will pay only 1% interest, there really isn’t a profit motive to bring in outsiders. But there is a strong financial incentive to rescue customers.
“If you can help that business stay alive, you have minimized your own losses as a lender. It makes sense,” Childears said.
About a third of banks in the state were active SBA lenders and have pushed out PPP loans, he said. Given the program initially had a 16-point list of potential exposure, they took a risk. That list has since been narrowed to three areas of exposure, encouraging more banks to lend. Basically, if a borrower lies to a lender, that customer will be held liable.
Another third of the banks in the state have SBA approval to make loans but weren’t active lenders. It took longer to get them into the SBA loan approval system, which crashed for several hours on Monday because of heavy demand. The final third didn’t have approval in the SBA system and are working to get it.
“None of us know how fast this $350 billion could be consumed. The money will not be sufficient for the demand that seems to be out there,” Childears said.
But there’s good news on that front. U.S. Sen. Susan Collins, R-Maine, tweeted Tuesday that the administration has agreed to support her push to add another $250 billion in funding to the Paycheck Protection Program.
And in another important step, the Federal Reserve said Monday it would soon release details on a program to buy up the PPP loans that banks are making. Banks could offload their loans and go back out and rescue another round of businesses.
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