BANKS ARE PREPARING to submit applications for the second round of federal loans to businesses as coronavirus shutdowns continue to impact the income of US firms.
The Small Business Administration will begin taking applications on Monday for a new round of the $310 billion Paycheck Protection Program after President Trump signed the bill on Friday. New provisions in this round reserve $60 billion for community banks and small lenders.
The program offers loans equal to 250 percent of a company’s monthly payroll. The loans can be forgiven if at least 75 percent of the money is used to retain employees or rehire workers who had been laid off. People who have already submitted applications in the first round do not need to file a new application. The maximum amount of a loan for a borrower remains at $10 million.
Banks, especially medium-sized ones like Eastern Bank and Berkshire Bank, have been flooded with loan requests since the beginning of the pandemic.
“The number of loan modification requests that we received from existing customers and other requests for financial relief are hundreds of times higher than normal,” said Bob Rivers, chairman and CEO of Eastern Bank. To fulfill Paycheck Protection Program applications, 200 employees are working around the clock to process 200 to 300 a day.
Business owners have to go to their banks or lenders participating in the program in order to apply for PPP. Most of those require an already existing business account. But Eastern Bank says it’s doing things differently, accepting applications from people who may only have a personal savings or checking account. The bank processed 5,000 approved applications from its own customers, and has 3,000 additional customer applications gathered for round two, and 2,000 non-customers. Half of the approved loans were for less than $50,000.
The second COVID-19 rescue bill signed Friday includes $310 billion in new money for the PPP. The first round of funding was depleted within days of being released on April 3, leaving many business owners who were waiting to be approved, or those who had been approved, without checks. The first round supported 1.66 million small businesses, according to a Small Business Association statement. According to government data, 96 percent of all borrowers approved for the first round wanted loans of $1 million or less.
The new round will set aside $30 billion for financial institutions with $50 billion to $10 billion in assets and another $30 billion is set aside for financial institutions with under $10 billion in assets. This is in an effort to include smaller banks and credit unions that often extremely small business clientele and minority-owned businesses.
Rivers noted it’s possible that smaller credit unions could still be processing loans from that the first pool of funding after larger banks have already drained the $250 billion from their allotment. Not all banks are participating in the PPP program. Rivers explained that some smaller banks don’t have staff resources or SBA specialists.
The competition for funds has been uneven, at best. According to a survey by the National Small Business Association, 52 percent of small businesses with 20 employees or more received approval for their PPP loan, while only 18 percent of enterprises with 10 or fewer employees received approval. The survey was conducted among 980 small business owners between April 15 to 18.
The broad definition of small business made headlines last week when corporate fast-food burger joint Shake Shack received and returned its $10 million PPP loan. The company, which has over 6,000 employees, said it will instead raise capital by selling shares. Many small businesses, like those whose circumstances were recently described in CommonWealth, do not have that option.
Places like Berkshire Bank have also traditionally worked with the Small Business Administration on loans. The institution is the 17th largest SBA lender in the country, despite being the 138th largest bank, according to Malia Lazu, Berkshire’s executive vice president and chief experience & culture officer.
Berkshire’s lenders have been on large phone conference calls with US Sen. Marco Rubio, who is the chairman of the Senate Committee on Small Business and Entrepreneurship. That committee is helping organize guidances with the Small Business Administration to make sure banks are aware of the loan guidelines.
Lazu, who was recently a panelist on a Boston Chamber of Commerce call focused on minority-owned businesses, said that the PPP’s applications don’t track race data, but Berkshire Bank is doing its best to do so. For the first round of PPP loans, approved minority-owned business “were near 100,” said Lazu. “I can also tell you the second loan approved was for a woman of color owned business,” she said. But banks can’t set aside funds for businesses run by people of color. “It’s first come, first served,” Lazu said.
Both Lazu and Rivers are pushing for special assistance for businesses that are both very small and minority-owned in an expected third round of funding in the coming weeks. Eastern and Berkshire banks, in the meantime, have contributed to the Business Equity COVID-19 Emergency Fund, which was launched by Amplify Latinx, the Black Economic Council of Massachusetts, and the Boston Foundation’s Business Equity fund two weeks ago. The organizations have raised $2 million out of a goal of $10 million as of Saturday, for no-interest bridge loans for businesses with revenues of at least $250,000.
The problem with the newest round of funding, both Rivers and Lazu said, is that the applications aren’t need-based, and many very small banks that have access to the new $30 billion pool aren’t actually even taking part in the Paycheck Protection Program.
Rivers thinks that $60 billion should have been set aside for companies with 25 employees or less, with no limitations on what financial institutions the applications are coming from. “The problem with segregating these monies and that $30 billion to the small institutions is that many of them are not participating,” said Rivers. “And two, even if they are, they have really limited capacity. Hopefully on round three, they won’t make this mistake again.”
The Small Business Administration will resume accepting PPP loan applications on Monday at 10:30 am from approved lenders. Lenders have been queuing those up for the past several days, ready to hit a button to digitally send them at that time.
Banks are urging entrepreneurs to be ready for round two, and to have their payroll paperwork in order. “Funding is limited. The thing we’re most concerned about is our customers getting left behind,” Rivers said.