Riding the PPP
More than two months after it began, the Paycheck Protection Program seems to have worked, though at times it was a very bumpy ride.
When the COVID-19 pandemic first made its presence felt in a large way in Wisconsin in early March, every industry was forced to adjust on the fly. The financial sector had an especially significant learning curve because when it became apparent that many small businesses would need a lifeline during the shutdown once safer-at-home orders were issued, banks and credit unions became ground zero for rolling out a massive federal loan — or is it a grant? — program with little time to prepare.
The $2.2 trillion federal Coronavirus Aid, Relief, and Economic Security (CARES) Act passed on March 27 created the Paycheck Protection Program (PPP), a $350 billion fund intended to provide relief to struggling small businesses deeply impacted by the pandemic. Round 1 of the PPP kicked off on April 3 and funds were quickly exhausted by April 16, a period during which the SBA guaranteed 1,661,367 loans nationwide.
Round 2 of the PPP made an additional $320 billion in funds available beginning April 27, a pot of cash that still has money available as of June 8 largely due to the smaller size of loans given out during the second wave.
In total, as of June 6, the SBA guaranteed 4,531,883 Paycheck Protection Program loans nationwide through both rounds for a total of $511,382,171,979. According to the SBA, 5,458 lenders had participated in the program and the average loan size was $112,962. Wisconsin’s share of that through June 6 was 81,232 loans distributed for a total of $9,765,105,528.
In Business caught up with three local small business lenders as they navigated the at-times tumultuous PPP process during its first two-plus months, and heard about their experiences — good, bad, and somewhere in between — as the program moves forward into the summer months and the possibility of a third round of funding is being floated by lawmakers.
It’s worth noting that on June 5, President Donald Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA), a bill designed to iron out some of the flaws in the original PPP. Loan recipients now have 24 weeks — rather than the original eight — to spend the funds and still qualify for forgiveness of the loans. Changes to the PPP include:
- The payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. First, as previously allowed, borrowers can exclude employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. Second, the new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020 levels.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
When the COVID-19 pandemic started heating up, Scott Ducke, executive vice president–chief lending officer at State Bank of Cross Plains, was at a conference in Florida. By the time he returned, things were already changing fast for the banking industry. “We knew some sort of government relief package was coming but didn’t know what it would entail,” recalls Ducke. “Financial institutions were given a choice about whether to participate in the program. This was a huge undertaking but all our discussions focused on the fact that our customers would need help.”
Ducke says SBCP’s conversations at that time usually involved two pieces:
- Helping clients prepare for the potential government relief by gathering basic financial documents that any application would require, and
- Helping them identify and address their vulnerabilities.
Each small business has its own strengths and weaknesses, notes Ducke, its own unique personality for handling inventory, prospecting and sales, marketing, sourcing raw materials, and managing cash flow. SBCP’s lenders tried to find out where those clients needed the most help and serve as a sounding board for ideas.
“We made a conscious decision to reach out to business customers one by one to find out what they were most worried about and how we could help,” says Ducke. “We took the approach that any financial hardships were the result of the situation rather than the result of weaknesses within the company. That attitude enabled customers to be very forthright about their needs so we could take actions such as eliminating late fees or low balance fees and discussing the possibility of interest or payment deferrals on existing loans. We [also] temporarily stopped reporting late payments to the credit bureau.”
According to Ducke, SBCP knew the most effective way to help would be to provide solutions based on the customers’ situations, so it helped customers prepare a three-month projection. “Rather than asking how they were doing, we asked them if they felt ready for this and how we could help them be ready,” Ducke explains. “In addition to those individual conversations, we created a lot of newsletter and blog articles on specific business practices, such as managing cash flow, restructuring debt, creative ways to use inventory, or how to source materials from new vendors. We wanted to help small businesses operate as efficiently as possible to limit their losses as much as possible.”
As soon as Gov. Tony Evers announced school closures along with businesses, Kim Sponem, president and CEO of Summit Credit Union, says her team knew it needed to offer immediate relief to business members. “We did not know at that time that there would be government assistance, so we quickly sent out information on options to defer loan payments to our business members most likely to be impacted by the shutdown,” Sponem says. “The most important thing at that moment was for Summit Credit Union to do what we could to relieve the stress level of small businesses and let them know we are here as their partner to help them through.”
Sponem notes that Summit reviewed its business loans and instructed its team to reach out to business members and talk about how the credit union could support them. That included looking at lines of credit and access to capital through products they had with Summit that they may not have needed to explore before the pandemic. As soon as the CARES Act was signed on March 27, Summit was preparing for the program to go live and fielding numerous inquiries in the days leading up to the program, and then hundreds of applications in the first few days following the Friday, April 3 program launch.
“We reviewed the industries that we felt would be hardest hit and automatically offered deferrals to those borrowers,” notes Sponem. “In the second half of March, our lenders also reached out to business members we identified as part of impacted industries to talk about options and let them know we’re here for support.”
For Park Bank, a new tagline launched earlier this year was almost eerily suited to COVID-19 fallout. “When we launched our new tagline, ‘Let’s Get to Next,’ we had no idea that the ‘next’ would be a pandemic,” marvels Elyse Smithback, first vice president–business banking. “But, the ‘next’ we are talking about with our clients is to provide financial solutions that help keep local businesses going and help keep their employees financially secure.”
When COVID-19 hit, Smithback recalls knowing that her team at Park Bank needed to quickly communicate with clients. “In a time of uncertainty, our clients had to know that they could count on us to be their partner to get through this challenging time. Before the safer-at-home order was put into place, Park Bank began deploying many associates to work remotely, and we were able to do so successfully while still providing the same level of service to our clients.”
Park Bank tried to reassure clients that it would support them by adjusting loan structures and assisting with financial planning for what was to come, adds Smithback. “We also worked hard early on to understand the continually changing programs like the PPP so that once they were launched, we would be ready to get these loans processed and approved.”
From the moment the PPP loan process began, Smithback notes Park Bank was flooded with applications and requests for information. “We made it our priority to quickly decipher the program, understand it, and get as much information to our clients as soon as we received it.” Smithback says she worked closely with her clients to get them information, application forms, checklists, and other resources so that when it came time to submit applications, the bank was able to do so quickly.
To date, Park Bank has approved 616 PPP loans for a total of $107,276,000. “I remember specifically when Ryan Shea, our vice president of credit, told us that the SBA portal was open and we could begin processing applications for approval,” recalls Smithback. “Since the program has continued to evolve and change, we knew how confusing it would be for our clients. One thing we could do for them as they were worrying about their businesses was to clarify the process and support them from the start.”
According to Smithback, the bank stayed in touch with all of its clients in between the first and second rounds of PPP funding, working with them to ensure the bank had all the documentation required to quickly get them approved when the second round started.
SBCP’s Ducke notes the early days of PPP were always busy but less often smooth. “We processed 125 applications the first day and more throughout the weekend,” Ducke remembers. “Then the following Monday, the SBA website went down. There was so much to deal with every single day.”
During the first round, SBCP approved 694 applications in that two-week period. For context, over the course of that month Ducke says the bank approved 10 times its normal number of loans. As of the beginning of June, SBCP had approved more than 400 additional loans for a running total exceeding 1,100. “We figured out that there were more than 12,300 jobs associated with those PPP loans,” says Ducke. “For us, we found motivation from seeing the number of neighbors in our community we could help rather than just tracking the number of loans.”
Ducke notes the learning curve for SBCP and its employees was steep. From a procedural standpoint, the bank had a few pieces of the puzzle in place, starting with the fact that SBCP is an SBA-preferred provider. However, while some banks had software to process online applications, SBCP did not. “We ended up building our own in just five days,” notes Ducke. “I can’t say enough about our IT group.”
From the loan program standpoint, a lot of businesses were confused about whether PPP was a loan or a grant, so SBCP had to thoroughly understand every aspect of the guidelines so its bankers could explain it to the businesses they worked with. “I actually think our size was an advantage,” explains Ducke. “We were big enough to be able to create and implement an effective process, but small and nimble enough to adapt and make changes quickly.”
Ducke notes that everyone who applied for PPP through SBCP got funded. Roughly 700 of the 1,100 loans the bank processed were existing customers. The rest were referrals from local banks or credit unions that chose not to participate in the program or from accountants who had an existing knowledge of SBCP’s process. “We had maybe six or seven of our own bank customers who applied but didn’t get through the first round, but we made sure they were ready when the second round came through,” notes Ducke. “We only had a handful of larger businesses that applied for and received PPP loans, so the majority of businesses that got loans through State Bank of Cross Plains were local small businesses.”
Ducke notes the real successes of the program are measured by the individual stories he hears each day. “For instance, one of our customers who owns a restaurant and sports pub that employs 20 full-time and part-time staff shared that if it hadn’t been for the PPP loan, he may have had to walk away from the business he had run successfully for more than 30 years.”
Sponem says her lenders at Summit have heard many of the same sorts of stories from their own clients. “We worked with business owner Brian Britt of Inspire Barber College, a business he started just three years ago,” notes Sponem. “His goal is to help youth in challenging circumstances gain the structure and professional skills to access new opportunities. Mr. Britt used the PPP funds to pay wages to his six employees and pay some other bills, keeping his business afloat and ensuring his employees were paid.
“I’d also like to tell you about Virginia Davis School of Dance, a legacy business on the east side of Madison that was opened in 1975 by Miss Virginia and is now owned by her daughters Vlyn Davis and Kay Hamielec,” continues Sponem. “This business relies on student payments for each term and a recital for cash flow. Closing the school meant no fourth-term payments and no recital. PPP helped pay 11 dance teachers for one and a half months and part of the mortgage. Miss Kay told us that this won’t be enough if COVID continues but this funding was very much needed and appreciated to keep things running in the short term.”
Any time a program is implemented as quickly as the PPP was, there are bound to be questions and changes along the way, Sponem notes, and while getting the latest information and adapting to new guidance from SBA was a challenge, she believes it was worth it. “Every one of our businesses that qualified for PPP received their funding. That helped hundreds of businesses and thousands of real people keep getting paid.”
At Summit, the team that usually works in the SBA department is 1.5 FTE embedded in a much larger business and commercial services team. Leaders at the credit union knew back in March they would need more people to focus on business needs through the COVID crisis. Twenty to 30 additional employees were allocated to this team and worked around the clock in several shifts and on weekends at several points during the PPP funding process.
“Communication was a priority as many business members were stressed by the business closure orders and news reports that PPP funding was going to go very quickly,” Sponem recalls. “We dedicated employees from other parts of our team — including branch staff who couldn’t work in our lobbies but wanted to find ways to help members during these trying times — to ensure we could provide updates and answer questions on this evolving program.”
With the speed of changing legislation and the need to get answers for its members, Summit monitored multiple sources in real time. It was not so much a learning curve as it was “Flex learning,” which Sponem recently coined within her organization. “COVID-19 has required Summit Credit Union to take flexibility and learning to a new level and then re-learn and re-learn again — a good skill as we move forward,” notes Sponem. “As the forgiveness piece of PPP loans is changing, we have used our own resources to help develop a worksheet for our business borrowers to help them track their expenses according to the rules of the plan.”
As of early June, Summit was able to help more than 1,400 businesses obtain a PPP loan, impacting the jobs of nearly 5,000 employees.
While some pundits and experts believe a third round of PPP funding — at least — could still be needed, the appetite for loans in Greater Madison has begun to ebb, note our panel of local financial executives. “I think the need for Dane County small businesses greatly depends on what the forgiveness qualifications are and how long businesses have to use the funds,” explains Sponem. “I don’t think there is a big need in its current form. There is still money left, about $100 billion in the second round, and we’re seeing a trickle of interest compared to the early days of just a few weeks ago.”
Sponem notes PPP got relief and money into the hands of business quickly. “It was quite impressive, really. While the SBA website crashed many times causing frustration for financial institutions like Summit, the SBA approval process really went pretty smoothly.”
Still, if she were advising the SBA, Sponem would tell them not to launch a major program on a Friday. “That alone added stress to businesses when they were trying to alleviate stress. I’d also ask them to get out earlier with guidance, including legal agreements, and try not to change the program so many times mid-stream.”
Park Bank has also seen a slowdown of PPP applications since the second round opened, notes Smithback. She believes that the majority of the borrowing needs of a typical Dane County business have been addressed. However, there are some nontypical businesses that are being hurt by the pandemic that were not able to qualify for the PPP. Examples include A Woman’s Touch, a sexuality resource center and retail store that published a Facebook post on April 9 noting it was turned down for PPP funding. “Also, there are a lot of types of self-employed consultants who do contract work and have a hard time proving employment at a specific time,” says Smithback, “like artists and people who only sell on eBay or other online sellers. It may be a good idea for the government to look at a third round that might specifically help these nontraditional businesses.”
The two biggest wins to come out of the first two rounds of PPP so far are being able to help secure wages for so many individuals and help businesses weather the storm in order to survive past this difficult time, says Ducke.
However, one of the biggest frustrations of the program that affected both banks and businesses was that everything was happening so fast and no one had any lead time to prepare. “I don’t know if that could have been avoided really, but we had people working around the clock to develop online systems for accepting and processing applications,” Ducke explains. “Every bank had to come up with its own way of handling the PPP loan process, so not every business had the same experience or level of support.
“I think that issue is already improved because every financial institution has gone through the application process now,” he adds, “but it would have been nice to get the tools we needed and a standardized process along with the application and guidelines.”
While the initial flurry of activity to apply for and receive PPP funds may have died down, Ducke notes the roller coaster ride of the program, much like the COVID-19 pandemic itself, has not yet ended. “Keep in mind, we’re only halfway through this process,” Ducke points out. “We still have the whole loan forgiveness portion to go through yet.”