Ask many U.S. small business owners about their struggles through the past pandemic-focused year, and there’s a good chance the conversation will turn quickly to last year’s experience trying to secure relief funds from the Paycheck Protection Program.
PPP, first launched last March as the centerpiece of the federal government’s efforts to keep small businesses afloat during COVID-19, almost overnight turned many financial institutions – large and small – into Small Business Administration lenders.
While many bankers were able to successfully up their game enough (despite shutdown induced closures and cutbacks) to get millions of loans successfully applied for and funded, there were definitely some kinks in the works during that harried, hurried first PPP round.
“We were told that if we all masked up and hunkered down, we’d get through this in two months or so,” says Sam Sidhu, chief operating officer and vice chairman of Customers Bank of West Reading, Pennsylvania, an $18.4 billion asset-bank involved in the program. “It was the best information anyone had at the time.”
But privately and behind the scenes, Sidhu says, the Treasury Department, SBA, the Federal Reserve Bank and other financial regulators “made it clear to lenders that this was taxpayer money and needed to be protected.” Hence, all rules and protections regarding Know Your Customer, the Patriot Act, Anti-Money Laundering and other compliance were to be just as strictly enforced.
“Banks across America went to their existing clients, who had already surmounted all these hurdles to provide PPP loan opportunities,” Sidhu adds. “With no malice, the unintended consequence was less accessibility to loans for the ‘unbanked’.”
Indeed, among various hiccups in the initial PPP funding, there was significant criticism that the program did not accord as much funding to businesses run by women and people of color as it should have, or that it served the businesses most in need.
Detra Miller, minority-owned business banking manager for M&T Bank, recalls “it was a very chaotic time for both entrepreneurs and the financial industry. Entrepreneurs were eager to get access to funding to help them sustain their businesses during that difficult time. … The volume of applications and the speed at which they were coming due to the “first come, first served” model was overwhelming for the industry.”
David Lance, chairman of Community Bankers Association in Georgia and president of Greater Community Bank in Rome, Georgia, points out that banking associations like his “tried to play a role of support,” particularly to community banks, which were arguably most overwhelmed by the rapid flood of loan applications. Among other issues, PPP was plagued by technical issues that caused Lance’s own $285 million-asset bank to be “third from the last bank in Georgia to get access to the SBA [online] portal,” which was necessary for PPP applications.
Bankers were forced to work back channels; for example, Lance reached out to his state Congressmen in effort to get help. Even late to the party, Community Bank was able to fund $47 million across 334 PPP loans. “We felt we had done a good job,” Lance adds.
Technology glitches, overwhelmed staff and systems, contradictory dictates, and an over-arching pressure to make things happen fast all contributed to a rushed, somewhat confusing environment with the first round of PPP. But now, with a second round of PPP currently under way, bankers and others involved in the process are much older and wiser—and applying their lessons learned last year to this recent round of funding.
“All of us learned from our initial experience,” says Lance. In this second round of PPP, Lance’s Greater Community Banker has so far approved 130 PPP loans worth $22 million.
But, more importantly, there are better guidelines around the funding process, such as the need for business customers to demonstrate that they are 25 percent down in revenues for at least one quarter. And, Lance says, “there’s not as much of a frenzy. The rules are better known, and everything is calmer… approvals are coming much faster.” While he admits there was a “huge learning curve,” Lance says that his banks and others have “found out what works.”
John Walsh, EY America’s banking & capital markets leader, says that, as a result of their initial experience with PPP, “banks have been very focused on outreach and education, understanding that they are working with borrowers that have varied levels of sophistication.
“The key has been to understand their borrowers’ needs, and how to satisfy and accommodate each eligible borrower regardless of size,” Walsh says. “The last round of funding included provisions targeted at the smallest of borrowers and provided additional early access to the PPP program by community banks.”
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