N.O. Banks Rally to Provide Paycheck Protection Loans

NEW ORLEANS – The federal Paycheck Protection Program officially went live Friday, April 3. The unprecedented initiative aims to provide up to $350 billion to small businesses nationwide to allow them to maintain payroll and prevent an even bigger economic disruption that has already occurred as a result of the COVID-19 pandemic.

The plan is for the nation’s roughly 5,000 FDIC-insured banks to take applications from their existing customers and make loans using their own capital. Then the Small Business Administration will reimburse the banks. Businesses, meanwhile, will see their loans forgiven as long as they keep their employees on the payroll for eight weeks and use 75 percent of the funds for payroll-related expenses (which includes mortgage interest, rent and utilities).

The process is a big logistical challenge for the banks. Each is approaching the assignment differently. Some, like the Lafayette-based Home Bank, have gotten off to a fast start.

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By 4 p.m. Monday afternoon, Home Bank had processed 838 applications that represent $150 million in potential loans. It has already gotten SBA authorization for about $20 million of those and closed roughly 15 loans for about $2.5 million.

“I think that we’re fortunate that we’re not really a huge organization. We’re big but we’re not so big that it’s hard to get things done,” said John Zollinger, the bank’s senior vice president and market president. “Our executive management has thrown a lot of resources at this and taken people from other departments and moved them into areas where they can assist in assessing these requests.”

Zollinger said bank managers have had to adjust on the fly and figure out what they needed to get the process online.

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“We rolled it out pretty quickly and our commercial relationship managers and our branch managers have done a good job communicating with their clients,” he said. “We feel like we’ve put together a pretty simple application process and are getting results back pretty quickly.”

Zollinger has no complaints about the federal process – especially considering how quickly the program came together. 

“If I was gonna give the federal government a grade I’d give an A plus,” he said. “We got to watch them make sausage. You’re talking about a bill signed on a Saturday and the next Friday morning it’s rolled out. That’s a 350 billion plan rolled out in six days. … Of course, if you’ve ever watched sausage being made you may never eat it again. It was painful to be told one thing Wednesday and a whole different story on Thursday night. That was difficult because we were trying to figure out what we were gonna do on Friday morning.”

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Zollinger also has no criticism for other banks that are taking their time getting started.

“I’m not taking anything away from any other bank that wasn’t up and running Sunday because you want to make sure you get it right because if you don’t you risk a lot of things going wrong if you don’t.

“And the four big guys are not up and running yet so I’m told. Bank of America, Wells Fargo, Chase Bank and Citibank have 80 percent of the deposits in America. The big guys want to make sure their systems are set up right and they also have to train people on how to use them. It’s not as easy as flipping a switch. We trained about 150 Thursday at 5 p.m. and then on Friday morning it changed. Chase employs one million people … so cut ‘em a break.”

Banks will earn a fee of 5 percent to handle a loan up to $350,000. For a loan between $350,000 and $1 million, the number drops to 3 percent. And it’s 2 percent and for loans higher than $1 million. That’s a pretty good deal, according to Zollinger, as long as everything goes as planned.

“The proof is gonna be in the pudding when it comes to documenting the forgiveness part and sending us our money but we won’t have to worry about that for another two to three months and I’m hoping in that period they will figure out how that’s gonna work,” he said. “But, in the meantime, we’ve been fairly well compensated to hold the money for a period of time.”

Gulf Coast Bank

Guy Williams of Gulf Coast Bank & Trust said their process kicked off in earnest on Sunday night (April 5) and they’ve already begun working on 2,595 applications.

“We have to take the application, get all the documents, underwrite them, get them approved, get an SBA loan number and then we fund the loan,” he said. “We’re a big SBA lender so we’ve automated the process. We have an online application and we’re using DocuSign so people can upload their documents and sign electronically. The SBA hasn’t delivered the closing docs but that should happen this week. As soon as we get those, we’ll be able to actually disperse cash. It’s coming quickly.”

Williams said that Gulf Coast is starting with its own customers first.

“The SBA has asked people to go to their own bank – because we’re starting with a knowledge base on everyone who banks with us,” he said. “Hopefully all the banks will participate and life will be good. But there will be some people who are mad at their banks and will want to switch so we will entertain non-customer requests as well.”

Williams said that even though the program went live Friday, it wasn’t until Sunday night that Gulf Coast was able to make its application form live.

“The funnel opened up Sunday night,” he said. “Even though [Secretary of Treasury Steven] Mnuchin said it was ready to go on Friday, it wasn’t. The SBA hadn’t released the documents. We had to get them and test them to make sure they worked. It’s like if you’re building a prototype car. You don’t deliver it to a dealer before you test it out to see if it works.”

There were plenty of applicants on Sunday night. 

“You’d think that people don’t work at night but in today’s environment you’d be surprised how many do,” said Williams.

Of the documents needed to complete an application, Williams said the payroll information is the most critical. 

“You divide one year of payroll by 12, multiply that by 2.5 and that is the size of the loan,” he said.

You’ll also need incorporation documents, articles, bylaws, proof of identity, drivers’ license, etc. Those are the critical things. 

Williams doesn’t consider this endeavor a money-making prospect for the banks but it’s an essential service.

“The problem we face is we’re having to divert all of our energy and effort to do this,” he said. “We worked through the weekend and we’re happy to do it. We want to make this work for the community but the result is we can’t do anything else. And we’re only getting paid 1 percent. It’s the exact opposite of a bank bailout.

“It’s like when you have two kids, you say one person cuts the cake and the other one picks the slice of cake. In this case, the federal government cut and then took both slices of cake. They said we’re going to make 3.75 percent on the disaster loans we make but the loans you make you’re gonna get 1 percent and you have to do it our way.”

On the plus side, if all goes according to plan, the entire process will be over in three months. And a lot of businesses will have received life-saving funds.

“We’re designing our loans to have all the info we need to be forgiven at the end,” said Williams. “Then the economy’s back on track and life is good.”

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