After the president on Friday authorized another $320 billion in forgivable loans through the Paycheck Protection Program, which included $30 billion just for the nation's smallest lenders, banks began dispatching new loans Monday. By Tuesday, banks with $10 billion or less in assets had already hit that $30 billion marker--but they're eager to keep processing more loans.
That should be welcome news to business owners whose applications may have stalled at the country's larger banks.
"We've been using [the PPP] as a business development tool to pick up new relationships," says Justin Goldman, a commercial lender at the Bank of Greene County based in Catskill, New York. He noted that many of the bank's current PPP borrowers were first turned away by larger lenders.
The U.S. Small Business Administration, the agency in charge of the program, has faced towering criticism over its handling of the PPP. Not only was the first tranche wracked by chaos in the days following its launch, investigations into the program showed that more than 200 public companies accessed the program--collecting hundreds of millions in funding that was supposed to be reserved for small businesses.
Setting aside $30 billion in funds specifically for smaller lenders was based on the idea that they have closer relationships with local businesses and therefore are more likely to extend them loans. In a nod to improving smaller lenders' access to PPP loans, the SBA even set aside an exclusive eight-hour window Wednesday, between 4 p.m. and 11:59 p.m. EDT, to accept applications from financial institutions with asset sizes of less than $1 billion.
The most recent numbers suggest smaller lenders are, indeed, stepping up to make more loans this time around, but it's not entirely due to the new PPP provision. Not only have smaller lenders been more eager to lend in Round 2, they're also simply better prepared this time, says Jim Gallagher, CEO of Lucro Commercial Solutions, a credit union service provider that works with 100 credit union clients, mostly on the East Coast.
"I think everyone got their act together between the first and second rounds," he says, noting that the lack of guidance from the SBA early on in Round 1 caused confusion and delays. "We're much better prepared in terms of processes and procedures this time."
In Round 1, 27 percent of loans clocked in at $5 million or more. And a single lender--JPMorgan Chase--approved more than $14 billion in loans at an average loan size of $515,304. The average loan size overall during Round 1 was $207,000.
As of Wednesday evening, institutions with $10 billion or less had approved 587,000 loans valued at $43 billion. Larger lenders had approved 167,000 loans equating to $25 billion. The average loan size was $111,000 as of Tuesday.
And though smaller lenders have already hit the $30 billion marker of funds set aside for them, they're still processing loans. Plus, the latest stimulus deal also carved out $30 billion specifically for institutions with between $50 billion and $10 billion in assets. So there's still room to apply at a variety of lenders--not just the bank you've traditionally used.
Here are three things to consider before applying at a small lender:
1. Ask around
While it's true that banks across the country have been working diligently to understand the PPP and help business clients better access the program, not all banks are putting forth the same effort. When the PPP was first announced, Goldman says the Bank of Greene County quickly switched gears to focus mainly on the program. It reassigned branch staff, pulled people from different departments, and shifted hours depending on program needs. For instance, when the SBA system was down on Monday, staffers took files home and worked well into the night to get applications through once the system began working.
The best way to know if a bank is willing to go above and beyond is to ask around, says Goldman. "Talk to people. Find friends who've had success with it and ask where they got it," he says, adding that ultimately you need to be proactive. "Banging your head against Wells Fargo's door won't do anything."
2. Act fast
Regardless of the size of your lender, don't delay. PPP loans are offered on a first-come-first-served basis--and some estimates have the program running out of money within the week. As of Wednesday, the program had already authorized 960,000 loans worth more than $90 billion.
3. Act decisively
Be sure to have your documents in order, suggests Gallagher. Whether its payroll records, financial returns, or a Schedule C, if it'll be of use--even if you're not sure--have it on hand. While it's true that some community lenders may be more inclined to walk borrowers through the process, there's very little time to do so, he says. "The paperwork needs to there on the first try and it needs to be correct, or you're probably not going to get a loan," he says. "It's just that crazy--the volumes and workload--with everybody right now."