The dust is starting to settle now that the race to secure a portion of the federal Paycheck Protection Program, for many, has passed.
Small-business owners got the green light on April 3 to submit their applications for the PPP program – a $349 billion relief effort that Congress passed in the Coronavirus Aid, Relief and Economic Security Act to help businesses survive the coronavirus pandemic.
Nationwide as of April 13, over $247 billion had been issued through 1 million loans, according to a report from the U.S. Small Business Administration. Of that amount, over $6.4 billion was allocated to Missouri businesses. Across the country, the SBA has recorded an average loan size of $239,000.
SBA officials said April 16 they were no longer accepting applications based on current funding levels. Talks already have begun on Capitol Hill about securing additional funding for the PPP in another stimulus package. U.S. Treasury Secretary Steven Mnuchin has urged Congress to set aside an additional $250 billion.
Local bankers say the panic has died down to secure the funding. The main concern now is the changing guidance from the SBA that are keeping them on their toes.
“We get daily updates and changes,” said Shaun Burke, president of Guaranty Federal Bancshares Inc. “They’re building this car as they drive it down the road.”
Karin Bell, senior vice president of SBA lending at The Bank of Missouri, said her main concern with the PPP is the conflicting information about how loans may be forgiven. Across the state, The Bank of Missouri approved nearly $96 million in PPP loans by press time.
“This is a fluid program and banks are challenged with information changing on them on a regular basis,” she said.
With a PPP loan, employers of 500 people or less can receive up to 2.5 times their average monthly payroll costs. The loans can’t exceed $10 million and may be forgiven if businesses maintain their payrolls during the COVID-19 crisis.
However, Bell said many borrowers were unaware when they applied for the loan that a countdown began for borrowers to use the funding once they received the funding.
“From the day you get your funding, you have an immediate eight weeks to spend it on the appropriate request. That’s the challenge,” Bell said. “There are businesses that may get the funding from their banks, but because we’re at shelter-in-place, they may not be able to bring back those people and spend those funds in eight weeks.”
As of press time, the SBA had outlined that borrowers must return to their bank after that eight-week period to apply for loan forgiveness. At least 75% of the PPP loan funds must be used for payroll costs and the remaining 25% has to be used for approved costs, such as rent, utilities or mortgage payments, according to the SBA website.
If borrowers don’t follow that guideline, Bell said it’s possible none of the loan will be forgiven.
“That may change in an hour. We’re still getting conflicted info from the SBA on the forgiveness piece because those rules haven’t been made,” she said.
Other SBA funding options include the Economic Injury Disaster Loan of up to $2 million and a loan advance of $10,000. Originally, borrowers weren’t able to utilize both the PPP and disaster loans, according to past Springfield Business Journal reporting.
Now, the SBA has outlined that borrowers can use both loans, but the money can’t go toward the same efforts, such as payroll costs, said Legacy Bank & Trust Co. CEO and President John Everett.
“They’re refining rules every day,” Everett said of the SBA. “They needed to get the program out as soon as they could. It was almost getting to be a little too late. Now, they’re having to come back and answer questions they probably hadn’t anticipated just because of the rush they were in.”
In an April 15 news release, SBA officials urged Congress to increase program appropriations, adding the administration had processed more than 14 years worth of loans in less than 14 days. Everett said Legacy Bank approved 413 loans for the PPP, totaling over $66.5 million in funding by press time. The average loan was about $160,000.
With roughly $100 billion in funding remaining, many bankers anticipate the program will run out of money by month’s end.
“Some of the nation’s largest banks were slow to ramp up, so there’s still a demand for this,” Burke said.
“I do think Congress will come back with a second wave of PPP funding because it’s been so successful.”
At Guaranty Bank, Burke said the bank had approved 476 applications for nearly $50 million as of April 14. Guaranty Bank ranked No. 2 in SBJ’s recent list of the area’s largest SBA lenders.
The 10 employees dedicated to the bank’s small-business lending efforts have pulled long nights and weekends to get the funding paperwork through, Burke said.
At midnight on April 3, Burke said he had a team already in place to begin approving loan applications.
“The SBA had a few glitches, and it took us until about 2:30 a.m. Friday morning to get the first approval,” he said. “The bottleneck was in the first few days of the program. … For us to push through 400 applications in the first week, that’s huge.”
Burke said an initial issue with the program was that the SBA was expecting banks to fund the loans with the application as the only source of documentation.
“The banking industry as a whole couldn’t get their arms around this,” he said, adding the SBA was quick to issue a note of guidance. “Some of the documentation and guidance has evolved as we quickly worked through the application to funding process.”
Other local banks also have recorded a heavy volume of applications. During a CEO Roundtable interview on banking, of which excerpts will be published in SBJ’s April 27 issue, Arvest Bank’s Kyle Hubbard said the banking system had approved $730 million across its four-state footprint as of April 15.
Officials from the area’s top SBA lender, OakStar Bank, did not return requests for approved loan amounts.
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