Concerns About Lag In Relief Due To Loan Application Volume
April 14, 2020
By Ken Liebskind, Special to Banking Mid Atlantic
As business shutdowns and unemployment numbers skyrocket across the Northeast and Mid Atlantic regions, both the banking community and the U.S. Small Business Administration are trying to ride to the rescue. But the speed of the problem, the historic spread of business closings, and a system that’s known for red tape are making it hard for lenders, and borrowers, to find their way.
The fiscal stimulus bills in Congress would provide at least $50 billion in cash and loan assistance for small businesses. But many bankers are worried that the support won’t come in time to help the commercial interests necessary to keep their regions alive.
“We’ve been inundated with calls and emails,” said SBA regional deputy director Julio Casiano, from his Connecticut office. “People want to talk with someone and we’re trying to let them know we’re here to help. It adds a little sunshine to their day.”
Casiano said he received a call from a Greenwich company he wouldn’t name with a payroll of over $100,000 per week and is being contacted by a variety of businesses. “Small restaurants are calling because of a loss of business and entertainment companies. We’ve even gotten calls from limousine companies and a music store.”
He said, “Applications are being processed as we’re speaking. Businesses are in need of working capital to stay in business and the U.S. Treasury will pass on money to the businesses that need it.”
One industry expert, though, wonders if the SBA is up to the task of quickly delivering aid. It’s due to the lengthy process behind the loans and the agency’s infrastructure.
“Normally, SBA loans can take months to process and get cash to small business borrowers,” said Rohit Arora, CEO of Biz2Credit, an online small business lending platform. “The SBA is doing all it can, but the online Disaster Loan application form is 15 pages and then you have to attach up to 20 documents. It will take hours to fill out the form completely. Small business owners need cash quickly, and there is no guarantee of how long it will take for business owners to get this disaster funding.
“My fear is that the SBA disaster loan site may crash. It wasn’t built for the anticipated volume of applications from businesses that were sailing along fine two weeks ago and now are in desperate need of cash,” Arora added. “The SBA has a network of partner banks, but the agency will need the help of Fintech companies to handle the volume of applications that will come. The longer this health crisis goes on, the worse it will be for small businesses, the economy, and the country overall.”
In an interview with the Baltimore Business Journal, Steve Bulger, acting director for the SBA Mid-Atlantic region that includes Pennsylvania, Delaware, Maryland, Virginia, West Virginia and Washington, D.C., said there were 11,000 loan applications through his region as of last Wednesday. That was before states such as Pennsylvania and Maryland received approval for their disaster relief applications. “We’re gearing up for hundreds of thousands of applications for these loans, if not more,” Bulger said.
The pickup in traffic has caused the SBA’s website to slow down. Bulger said the agency is aware of the problems, calling the amount of traffic "unprecedented.” The agency has been increasing capacity on a consistent basis, but he admits it still needs more.
Meanwhile, community bankers from New Jersey to Maine are looking for ways to be a lifeline to their business communities.
The Greenfield Co-operative Bank in Northampton, Mass., was one of the first to step up, launching a “payment holiday” for loan holders to defer monthly payments in April and May for 60 days. Michael Tucker, Greenfield’s president and CEO, said, “The payments usually due for April and May would be added to the back end of the loan term. Customers would not have to make those payments until the end of the loan term.”
The Adams Community Bank in Massachusetts has set aside a pool of money to offer small business grants to help businesses that do not have the ability to pay.
In Warsaw, N.Y., Five Star Bank announced measures to mitigate the impact of the COVID-19 virus on its customers, associates and communities. For consumer customers, through April 30, 2020, the Bank will be waiving early CD penalty fees for withdrawals up to $20,000 (limited to one penalty-free withdrawal per CD account); eliminating all insufficient funds and returned item fees; eliminating all Pay by Phone fees; waiving all late fees; offering the opportunity for monthly mortgage, home equity loan or home equity line payment relief; offering the opportunity to defer unsecured consumer loans or lines of credit and secured consumer loans and lines of credit payments; and offering unsecured personal loans up to $5,000, up to 60 months at 2.95% APR subject to credit approval (additional terms and conditions may apply).
Some of the other banks that have offered small businesses help with loans during the coronavirus are Bank of America, which offers assistance to small business clients, including forbearance with certain fees and Citi, which agreed earlier in March to waive monthly service fees for retail banking customers for at least 30 days.
The SBA has relaxed its loan policies during the coronavirus. SBA disaster assistance loans are typically only available to small businesses with counties identified as disaster areas by a governor. Under the revised criteria, they will be available statewide following an economic injury declaration.
Working from a directive by the Trump administration to equip the SBA with $50 billion to provide low interest loans to small businesses impacted by the coronavirus, the agency has developed a plan to offer loans of up to $2 million to small businesses.
The loans can be used to pay for working capital needs, such as payroll, accounts payable and fixed-payment debts such as bank loans. The details of each loan will be determined on a case-by-case basis.
Connecticut was one of the first three states along with Maine and Rhode Island to make available Economic Injury Disaster Loans to state-headquartered companies that have been adversely impacted by the coronavirus.
Companies can take up to 30 years to repay the loans at 3.75 percent interest. Loans under $25,000 are unsecured and above $25,000 are secured with business assets.
Last week, Massachusetts Gov. Charlie Baker announced a $10 million recovery loan fund that will provide emergency capital of up to $75,000 for small businesses impacted by the coronavirus. “Loans are available immediately with no payments due for the first six months,” he said.
In New York, John Witkowski, president and CEO of the Independent Bankers Association of New York State, said, “Now it’s early. People are feeling the impact and businesses know what will happen. We’re getting set up to help small businesses that are impacted but they’re not at the point of taking out loans. There are a zillion things going on and the credit piece is the next ball to drop.” He said New York banks will begin handling business loan requests within a week or two.
Pennsylvania banks are also assisting small business borrowers during the coronavirus. Kevin Shivers, president and CEO of Pennsylvania Community Banks, which represents 75 member banks, about half of the community banks in the Keystone state. He said member banks are waiving certain fees, modifying repayment plans, due dates or lengthening lines of credit to ease the pain of temporary layoffs for small business borrowers.
Shivers said the organization is coordinating conference calls with member banks to assist them in resolving lending and other issues during the coronavirus pandemic.
Credit unions in the area are similarly assisting small business borrowers. Mike Wishnow, senior vice president of marketing for the CrossState Credit Union Association, which represents 520 institutions in Pennsylvania and New Jersey, noted, “Many credit unions do business lending and are working with borrowers and allowing them to skip payments and extending loan terms. Financial institutions are working with members and won’t criticize them for taking measures to help borrowers, which gives credit unions confidence they can get through this limited time phenomenon.”
Wishnow also said most small businesses borrow money on a smaller scale, of about $120,000. “They are not multi-million-dollar borrowers and have reasonable credit needs.”
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Most financial institutions have tremendous excess capacity in their existing branches today.