NEW ORLEANS – Reports from around the country indicate that the Paycheck Protection Program has been rolling out more slowly than hoped but local bankers, at least, say they’re getting the job done.
The federal government’s plan is to offer $350 billion in low-interest loans to small businesses to help them cover the cost of keeping their employees on the payroll. (Another round of loans may follow.) As long as 75% of the money is spent on payroll or related expenses, the loans will be forgiven after eight weeks.
It’s up to the nation’s approximately 5,000 FDIC-insured banks to process the loan applications, disburse the funds and eventually get reimbursed by the Small Business Administration. According to the Associated Press, between April 3 and April 12, more than 791,000 applications were approved by the SBA. (In all of 2019, it processed under 60,000.) As you’d expect in an undertaking of this size, the AP says there have been plenty of logistical challenges – including overwhelmed banks and problems with the SBA’s E-Tran processing system. About a quarter of the businesses who have applied have begun to receive funding.
The stakes are very high for the nation’s small businesses, who, according to the New Orleans nonprofit Urban Conservancy, make up more than 95% of all US companies. The percentage is even higher in Louisiana.
New Orleans bankers think the logistics are going as well as could be expected. Gulf Coast Bank & Trust, for instance, reports that it has gotten SBA approval for loans valuing $101 million so far and it has dispersed $5 million. Home Bank reports nearly 2,000 applications worth $228 million and 235 closed loans valued at $57 million.
Meanwhile, Chris Ferris, president and CEO of Fidelity Bank, said the bank has taken in more than 1200 loan applications and funded 150 of them. Fidelity has approved and has documents out to fund 635 of those loans for $93 million. $35 million has already been funded the rest is likely to be disbursed this week.
Ferris said he believes community banks were able to mobilize more quickly than the big national, super regional and regional banks which may explain why their experience has been less fraught than those described in national news stories.
“We saw this thing coming and put some early plans in place,” said Ferris. “We talk to our clients all the time; we know what they need. We don’t have 50,000 people applying and only know 1,000 of them. Instead, we had 1500 apply and we know most of them. We made a lot of assumptions and because of our knowledge of SBA lending, a lot of our assumptions were correct. … That gave us an advantage.”
Ferris said all the banks are making a leap of faith when they distribute their capital.
“I’m trusting the SBA, the treasury, and the state and local governments that have been assisting us with this and giving us assurances,” he said. “We have eight weeks to find out what the forgiveness process will look like, and how we get our money back. That’s why communication is so important between the banks, the Louisiana Bankers Association, our delegation and the treasury to keep lines of communication flowing and to raise the question of when we can expect guidance on the forgiveness portion.”
One silver lining? Ferris said this experience may remind people of the value of community banks.
“Even though there are efficiencies in becoming bigger and consolidating, we do have a place in the landscape,” he said. “The cost of doing business – compliance and technology – does get higher [for a smaller bank] and that’s why a lot of banks are merging but I’m optimistic as long as we continue to develop this niche of a little higher touch, I think over time the cost of technology does come down. Not sure about cost of compliance – that’ll come from regulatory relief from the federal government. If they can figure out a way to dial it in a little better, that helps the small community banks quite a bit.”
