On April 3, the federal government launched a heretofore unprecedented program to funnel money to U.S. small businesses hit hard by the coronavirus pandemic.
The Paycheck Protection Program (PPP) is a $350 billion segment of a $2 trillion federal stimulus package signed into law under the CARES Act earlier this month. Administered by the Small Business Administration (SBA) and processed through financial institutions (FIs), including banks and selected FinTechs, the program offers small- to medium-sized businesses (SMBs) loans worth twice their monthly payroll expenses. Those loans do not have to be repaid provided SMBs keep their employees on the payroll (or rehire employees that have been let go).
And while the announcement of the program was met with wide fanfare from entrepreneurs nationwide, the rollout has been rocky, to say the least. Beset by technical glitches, confusing processes and lingering questions about the flow of funds and how the forgiveness phase would work, the program has moved slower than many would have preferred, particularly the imperiled SMBs waiting on the funds. Worse, more than half of Main Street SMBs doubted their ability to reopen after the pandemic has passed, according to a recent PYMNTS survey of more than 700 Main Street SMBs.
And, 13 days into the program, it is, perhaps, about to be over nearly as fast as it started. On Thursday (April 16), all of the $350 billion of the originally appropriated funds have been promised — as the program was hit by a tidal wave of nearly 10 million applications within days of opening. Some of those applications were approved; the vast majority were not. And even those that were approved have been slow to see any actual dollars hit their bank accounts and are still waiting.
This is not for a want of trying on the part of bankers nationwide, said Planters First Bancorp CEO Dan Speight in his latest digital discussions with Karen Webster and Ingo Money CEO Drew Edwards on the ongoing saga that is the PPP program rollout.
Although complaints have emerged about the ways in which banks, particularly big banks, have made the loan program available and accessible to consumers, Speight noted, from the banker side of this the entire PPP saga, it has been a non-stop two-week work marathon for the entire sector.
“I don't care what size institution of people that I've talked to, especially around the state of Georgia and even the large banks — people have been working themselves to death trying to get these applications completed through the pipeline,” Speight said. “This has been long hours and weekends since it started. It is not a lack of effort from any bank of any size, believe me.”
Problems With The Program
The big problem, Speight and Edwards agreed, is going to be the lack of funds, both for the firms still waiting on them and those who didn’t manage to get their application in under the wire before the program ran out of money.
Ingo, Edwards noted, had actually gotten its loans funded this week, an effort aided in no small part by the “team of lawyers” Ingo employs and the fact “that we’re a payments company.”
Edwards said the SMBs he has been talking to are not reporting similar results.
“I've been inundated with emails from friends of mine that are in small businesses, and I haven't had one of them tell me they've gotten their money,” Edwards said. “I had one friend I actually tried to help refer to another bank because they couldn't even get an answer from their bank about whether their application was in or not.”
That friend did manage to get an approved loan number from their bank, Edwards noted, but given that the program ran out of money in less than two weeks, small delays might end up being the difference between getting a lifeline and going out of businesses for many still in line.
And although he applauded Speight’s diplomacy in crediting banks of all sizes with their efforts in this area, Edwards noted that his anecdotal understanding of this process has seen consumers reacting more positively to the experience they’re having with their community banks than the one’s they’re having with their larger counterparts.
“The community banks are closer to their customers and are vital to this effort,” Edwards noted.
What Is Needed
But equally vital to these efforts, Speight noted, will be pushing more funds into the program — promptly if at all possible — because as of right now, some businesses got loans and some missed out for reasons that were largely out of their control.
And these funds, he noted, aren’t meant to be an extension of money for those who have already received loans. For the time being, given how quickly the program was depleted, it is likely fair to assume they’ve gotten what they are going to get unless there is an entirely new stimulus package put into place.
He said his sincere hope, however, which Edwards echoed, is that before a much larger effort is undertaken, a new infusion of funds into the PPP is pushed through on the political front soon, as it really will be the difference between surviving long enough to recover, and deciding how to permanently shut down. Moreover, he noted, the government needs to help banks, particularly smaller ones, who have carried as many of these loans on their balance sheets as they can.
“It would be nice if the Fed opened up some facilities for liquidity purposes,” Speight said. “If there was a way to buy some loans off the banks’ books, they could continue to make more loans as well. I would imagine that a lot of community banks like us are at their limits as far as how far we can go with underwriting these.”
Edwards noted that the bigger question SMBs need to answer, particularly those that have received stimulus funds, is what their plan for recovery is. Some businesses are going to bounce right back. Other verticals — dining out and travel — will probably have to start thinking right now about their walk-back plans.
“If you were in a business [and] you aren’t sure if it is coming back or how fast it is coming back, you better start having a plan eight weeks from now to rethink your business and rethink cost structures,” Edwards said. “I think you can take a restaurant environment and create a new kind of environment, and that should be the new normal, and the strong businesses will be sitting around right now figuring out how to do that and make things more comfortable.”
Although something like a grand re-opening of society is on the horizon, Speight and Edwards agreed it will likely be a soft opening to an altered landscape. And a lot of firms will have to start thinking differently.
But to get through what’s next, they first have to get through what’s now, which, as the last two weeks have demonstrated multiple times, can be an evolving situation by the hour.
And that’s why this conversation will likely be an ongoing one.