The rollout of the Paycheck Protection Program (PPP) aimed at small- to medium-sized businesses (SMBs) has, by any account, been a wild ride to date.
As PYMNTS has reported in its weekly series of conversations with Ingo Money CEO Drew Edwards and Planters First Bancorp CEO Dan Speight, there have been hitches, from confusion from bankers over the exact contours of the rules of the program leading into launch day; to the incredible rush of applications that flooded and quickly swamped lenders; to the uncertainty about the future of the program when it abruptly ran out of money less than two weeks in and required a somewhat contentious congressional re-upping.
But for all the complexity, confusion and ongoing questions, Walker Insurance Agency CEO Larry Walker III said the PPP is an incredibly important contribution to the economy at large and community banks are absolutely critical in making that contribution possible.
Walker joined Edwards and Speight for this weeks’ chat about the PPP’s ongoing rollout and brought an unusual perspective to the discussion as he is the CEO of a business that just got a loan via First Planters as well as a board member at a different community bank and a Georgia State Senator. He is also someone who has spent 14 days in quarantine after being exposed directly to the coronavirus on the floor of his state legislature.
“I just think we could be headed into a pretty deep recession,” Walker said. “I think this is going to impact us for quite a while and [the PPP funds] buy us time to adjust some of our expenses if we need to. And I was genuinely conflicted about doing this really because I've never taken any government assistance before, and I pride myself on that, but in order to make sure that I could keep my people employed, I thought it was important that we do this.”
He said the experience illustrated how important it is to have a community bank relationship in place so there is someone to “hold my hand and walk me through this.”
The panel agreed that buying time is a good starting point and will make it possible for some SMBs to restructure and pivot. But there is still a lot to do from the starting point — both in the short term and the long term — as the entire economy is gearing up for a reset that just might be a lot more fundamental that anyone imagined a month ago.
The Short-Term Issue: Keeping Small Lenders In The Game
While there is a wide perception that the banks are simply the processing nodes for the PPP loans, and that the loans are actually being funded and paid out by the Small Business Administration (SBA), that is only partially accurate, Speight and Walker noted. Broadly speaking, the fullness of all of those loans/grants should all be reimbursed to the financial institutions (FIs) that started the underwriting process. When is that going to happen, or what is going to happen if it turns out that a business got through the process that perhaps wasn’t really qualified? Those remain TBD areas; for the time being, all those loans are on the banks’ balance sheets.
That means that hypothetical infusion of another $310 billion into the system by Congressional appropriation may not mean they will actually be able to underwrite all that many more loans until they start getting reimbursed for the loans they’ve already started paying out.
“I would say to you that it's going to be somewhat limited for us,” Speight said. “We're going to try to get the ones that we didn't get in the first round, 15 percent or so that that we had in our pipeline that did not get in.”
If they have “extra powder” so to speak, both Speight and Walker’s community banks would like to expand the program to more businesses. In the latest round of PPP appropriations, Walker noted, Congress has earmarked an additional $60 billion to be distributed by community banks and credit unions (CUs) — and depending on how those funds are made available, that could increase more bandwidth for increased underwriting from community banks.
But until then, they noted, community banks in Georgia and nationwide have to balance out of their desire to bring these funds to as many SMBs as imaginable with the need to keep an eye on their balance sheets — and make sure they are also able to fund those loans and still provide services to their customer base at large.
And for all the praise community banks have gotten, Edwards noted, it is equally important that praise is paired with a focus on liquidity and making sure they can do what they’ve done best so far: keep funds flowing to the true SMBs out there. For all the fuss and anger about chains like Shake Shack and Ruth’s Chris Steak House getting multi-million-dollar loans, he noted, the large, urban money center banks that they work with were behaving rationally, working with their best capitalized, most prepared and most loyal long-term customers.
Punishing those banks and those business that are still keeping people on the payroll, Walker noted, is misguided.
What will work, at least in the short term, Edwards said, is building up those community banks and making them more able to serve the SMB base they have the best-developed relationships with.
“I think this just highlights the value of community banks in this company — if it wasn't for community banks that instead picked up the phone and called Larry or I and offered to walk us through this, I mean that's how we got our loan,” he said. “I don't think it's the big banks' fault, I think if you are a commercial loan officer there, your natural inclination [is] to go focus on your big-dollar relationships and take care of them.”
While the near term will be taken up by distributing the next round of funds, the panel agreed that barring any unforeseen disasters or hiccups the process should move forward more smoothly than it did last time around as many of the bugs have been smoothed out.
The bigger challenge, they agreed, will be for businesses that now have to figure out how to rewrite their roadmap for a future landscape that they know will be radically altered for the foreseeable future, but don’t know exactly what those changes will look like, or how long they will be in play. Optimists are still hoping this passes in the next few weeks, but the reality on the ground that most consumers and the panel are expecting is one where day-to-day life is very much different for the next six months if not more.
“I feel bad for the independent restaurant owners and the hairdressers and the boutique businesses in our little downtown,” Walker said. “I feel like a lot of those businesses are not going to be able to make it.”
But, they noted, for all the businesses that don't make it, many are going to use the time and the slight amount of breathing room the PPP has brought them to reconsider, pivot and reposition their business plan for a future in which consumers are at home more and digitizing their transactions as soon as possible. And while the next few months will be tough, Edwards noted, what comes out of them just might be notable.
“For now, it’s about keeping people employed and giving them an opportunity, and as Dan mentioned, to give them a chance to be creative, be innovative, think about new ways to meet customers where they want to be met right now.”