Key Lessons for FI's Bracing for PPP Round 2 | Lead Bank

Apr 27, 2020

By: Steve Cocheo, Executive Editor at The Financial Brand.

Mainstream headlines have badmouthed banking's performance in the Paycheck Protection Program. Often it is major institutions they criticize. But the fate of smaller business lenders is inextricably tied to their customers' survival beyond the coronavirus pandemic. So they took on the CARES Act program quickly and ran with it. These ambitious banks can now pounce on PPP round 2.

The first round of the PPP, as a limited time and limited funding effort, combined the worst elements of a land rush with a game of financial musical chairs. Adding to that frenzy were the frequent changes to rules and procedures as the Treasury Department and the Small Business Administration shifted gears on the fly as questions and issues came up.

“It’s been a real balancing act, building the bridge as you go,” says Jeff Gallery, EVP and Chief Credit Officer at Missouri’s Lead Bank, with nearly $400 million in assets. “We’ve been tweaking the process on a continuing basis. At the outset, we didn’t try to make it perfect, but to make it work.”

Now that the second round of the Paycheck Protection Program is out of the gate, community and midsize financial institutions are ready to go at it again.

As opposed to the criticism leveled at the nation’s larger banks over the handling of the government’s program, introduced virtually overnight, these institutions have earned the applause of small firms in a highly unusual period.

“I’ve received videos of people singing me PPP songs,” out of gratitude that they had obtained funds in round one of the program, says Rich Bradshaw, Chief Banking Officer at United Community Bank. The Georgia company, with $12.9 billion in assets, processed over $960 million in PPP applications, serving close to 7,000 firms in round one. The bank was out of the gate as soon as it had information to share with customers, holding a Webex meeting for 3,000 companies three days after the law passed on March 27.

“That seems like six months ago,” says Bradshaw. “It’s been an eight-day workweek since.”

That kind of remark is common among the banks interviewed. Working weekends to set up systems and then to process applications, often working into the wee hours, was the norm. Driving many was the realization that the nation’s small businesses were facing a rare kind of disaster. The decision to shut down the economy at many levels had the impact of instantly stopping a merry-go-round — while it was turning at top speed.


‘Congratulations! You’re Part of the Lending Team Now’

For many institutions PPP has been an all-hands effort at times. At Customers Bank, with $11.5 billion in assets, besides the relationship managers who routinely work with business customers, “we were pulling people from everywhere” to get 1,216 loans approved for a total of $384 million in PPP funding, says spokesman David Patti. At United Community Bank, a team of 60 SBA specialists was augmented with 500 draftees from other parts of the company.

Across the country, owners of smaller companies, without access to capital markets, meanwhile were on tenterhooks waiting for answers, and, finally, proceeds, assuming they could get their application in at all.

“Some of them have been very anxious, some almost in a panic,” reports John Lindley, VP of Business Operations for First Reliance Bank, a $659 million-assets bank based in Florence, S.C. Lindley describes the city, at the height of the state’s lockdown, as “pretty much a ghost town.” It was hard to be optimistic about business when coronavirus had cleared the streets.

“It’s been the full gamut of local businesses, everything you can imagine from florists to small insurance companies,” says Lindley. As the second round was poised to begin, the bank’s home page reported results thus far: “380 applications, $38.9 million, 13,000 jobs saved!”


Small Business Needs All the Help Lenders Can Muster

Something perhaps not fully appreciated in all quarters is that many small businesses were not simply waiting for the government to come up with a way to bail them out. While the PPP was portrayed initially by some as a bonanza of free federal money, just bring your bucket, on Main Street owners were already trying to apply their own resources.

Often owners resorted to tapping business credit card lines, personal card lines, and both business and personal lines of credit to keep their businesses operating, even if they couldn’t literally keep the doors open, says Jill Castilla, President, CEO and Vice Chairman at Citizens Bank of Edmond, Okla., which has $301.9 million in assets. Even with the first and second rounds of PPP fully deployed, she says, the economic impact on small business will require additional aid in spite of self-help efforts.

Castilla compares the steps taken to contain the disease, and the government’s efforts to aid business affected by the shutdowns thus far, to applying a tourniquet to stop otherwise unstaunchable bleeding.

The Oklahoma banker says that the drive to get PPP funds as the pandemic spread was so strong that her very small bank was receiving applications from out-of-state companies desperate to find an institution that could help. She heard stories about firms whose own business banks couldn’t serve them. Hard as it was to turn them away, the bank couldn’t help, needing to address local needs.


Original Article Here.


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