For the Small Business Association, the rapid rollout of the Paycheck Protection Program for businesses affected by COVID-19 stay-at-home orders probably was a lot like “drinking out of a firehose.”
That was the impression shared Monday by Jeff Ellis, president of La Salle State Bank, regarding how quickly the SBA had to get an application portal set up. The U.S. Treasury has demanded that the program quickly convey money to business owners so they can get that money into the hands of their employees as quickly as possible.
Midland States Bank, based in Effingham, has 66 branches throughout the Midwest including Joliet, Dixon and La Salle, Bureau and Winnebago counties, and was one of the banks to get up and running on the first day of the program. Bank President Jeff Mefford said getting started wasn’t simple for banks, but the application process for business owners is not overly complicated.
“We were successful at the beginning of the process Friday. We are anticipating funding of some of these applications before the close of business today,” Mefford said about 3:30 p.m. Monday. He believed approximately 20 businesses would have benefits processed Monday, and the entire goal of the program is “help customers get to the other side of” hardships brought on by the pandemic.
Many bankers had a great deal of difficulty signing up to process low-interest relief loans, partly because lenders nationwide rushed into the computer system to sign up on the same days.
“It has been a challenge to deal with the Small Business Association and their processes. I don’t think they were prepared to handle the volume that they got,” said John McCormick, President and CEO of Eureka Savings Bank, La Salle. He said the SBA has been understaffed, at least in Chicago and Springfield, to handle a $349 billion nationwide program.
McCormick said he talked to 25 bankers, and all said they experienced a great deal of difficulty getting through the process to get the bank approved as a lender in the program. He sent in the application materials three times, only to receive responses requesting additional information. As of Monday morning, Eureka had been approved as a lender to help business owners pay employees, and he was diving into helping about a dozen local business owners.
Chris Duncan, senior loan officer at La Salle State Bank, said the process was aggravating for bankers, and glitches with computer access to the SBA portal remain frustrating.
However, he said a majority of small businesses could benefit from the program. Duncan explained how it works, noting 80% of the relief loan must go to paying employees for two months and the government wants business owners to use 20% of the two-year loan on utilities, rent or interest on a previous loan for a mortgage or other improvement. If the business owner uses the funds on those things, the government will forgive the two-year loan.
Despite early glitches in the program, Duncan said it will be excellent for many businesses due to a forgiveness aspect of the program.
He gave a scenario: If an owner has an average payroll of $10,000 a month and is approved for a $25,000 loan, the government will first require the owner to spend $20,000 of that on employees over those two months. If the owner spends $3,000 on a mortgage and utilities and has $2,000 left, that owner would be left with a $2,000 loan at 1% interest – an interest cost of roughly $1.67 a month, Duncan said. Plus, businesses can ask to defer payments for six months, requiring repayment for the subsequent 18 months.
“The key is to first spend it on payroll. You’ve got to knock out that payroll portion to keep the government happy,” Duncan said.
Concern remains that bigger businesses will get ahead of “mom and pop” shops. Duncan said JPMorgan Chase waited until this week to get going on the program, so some smaller banks have a head start. Still, there’s a belief that as soon as the largest banks have a portal into the SBA application system, “They’re going to suck up all the money.”
“I think the president assuaged those concerns when he said when we run out we will renew it,” Duncan said, adding that he avoids being too critical of SBA and the federal government. “I would give the Treasury small-business association a lot of leeway due to the sheer size of the program and the number of people who will benefit. ... I think they’ve got all hands on deck and there wouldn’t have been enough time for them to increase staff as quickly as this needed to be pushed out.”
Duncan worked all weekend to complete and submit approximately 30 applications in order to move some of the local businesses to the front of the line of relief. He was working on 20 more applications Monday.
“Our bank is approved and we have been submitting applications,” Duncan said. “We thought we could get ahead of the world by coming in on the weekend and getting more submitted. The program rolled out on Friday; we were here at midnight Thursday night and Friday morning thinking it was going to roll out. We got access shortly after 4 p.m. Friday."
Bob Cormier, executive vice president from Home State Bank, Crystal Lake, said the bank staff has not experienced any outages since gaining access to the SBA site. Ideally, the banks would have liked to gain access on Friday morning, but since the program became available, Home State bankers worked Friday night and through the weekend to process as many applications as they could.
“There’s a lot of interest in the program because of the forgiveness provision,” Cormier said.
“I think there are some additional rules to come out which make us uneasy,” Cormier said of the exact rules on how the borrowers are supposed to prove and verify how they spent the money. He understands that this is a new program, and the SBA has eight weeks to get those rules in place. But, ”I think the scary part for borrowers and us to some extent is you’d like to know the rules for forgiveness before you get the money.”