The Paycheck Protection Program represented a lifeline to struggling small businesses when it launched April 3, promising $349 billion worth of forgivable, low-interest loans.
For many, the money never materialized. By the time funds ran out 13 days later, just 20% of applicants nationwide had cash in hand, according to a survey conducted by the National Federation of Independent Businesses.
That wasn’t the case in Johnson County, where First Northern Bank vice president Travis Lawrence said that 100% of the applications he submitted were approved, for loans ranging from just a few thousand dollars to more than a million. Steve Reimann, community bank president at ANB Bank, reported a similarly immaculate record. Collectively, the area’s community banks helped hundreds of local businesses across two weeks in April.
Under the program’s guidelines, banks have 10 days to close and fund a loan once it is approved by the Small Business Administration, but Reimann said that for many of his clients it took just two or three days.
Available to businesses with fewer than 500 employees, the loans offer financing up to 2.5 times monthly payroll costs. They come with a 1% interest rate and a two-year term, and if business owners spend the money on approved costs, such as paying employees, rent or utilities, the loans can be entirely forgiven.
Last week, Congress refunded the program with an additional $320 billion, reopening the application process Monday morning. The second round of lending also expands the program to include ranchers, farmers and small hospitals, and sets aside $60 billion exclusively for small banks and community lenders.
Luke Todd, the owner of Buffalo’s Sports Lure, secured one of the early loans. Since the coronavirus hit Wyoming, he said, sales have been down by half.
“I was scared to death,” Todd said. “My family owned the store for 52 years. I don’t want to be the one at the wheel when it goes down.”
The extraordinary success of Johnson County’s lenders appears to be part of a broader trend. Across the country, as analysts tallied up PPP success rates, community banks were consistently at the front of the pack.
Those victories were not without effort.
“It was crazy,” Lawrence said. “That week of April 5 to 11, I was working 12 to 18 hours a day. I was shot.”
Through the first round of funding, First Northern Bank filed nearly 300 applications totalling more than $24 million.
Statewide, lenders distributed $830 million to 7,618 companies, according to the Small Business Administration.
“It was tough to manage,” Reimann said. “There was just a flood of requests, because there are so many entities and individuals that need this so desperately.
“Our direction was that these requests were our No. 1 priority, and we worked on them and nothing else,” he added. “And we worked on them hard – straight through that first weekend.”
Looking back, there are a number of reasons that community banks were able to excel at PPP lending.
Smaller banks are able to be more nimble in changes to staffing and operations. Reimann said that ANB, which has 31 locations across Kansas, Colorado and Wyoming, took roughly a dozen employees from several departments and dedicated them exclusively to the program.
Analysts also noted that businesses that lack a personal connection with local lenders or bank exclusively online struggled more to obtain loans in the first round of funding.
Big banks appeared to prioritize clients with a higher net worth, according to reports from across the country. Plaintiffs in four class action lawsuits in California alleged that Chase Bank, US Bank, Bank of America and Wells Fargo pushed larger companies to the front of the line in order to collect higher origination fees, according to a report from Bloomberg Law.
Amid widespread criticism, several large chain restaurants, including Ruth’s Chris Steakhouse and Shake Shack, returned tens of millions in loan money they had obtained under the program.
Although the majority of loans in the first round of funding were for less than $150,000, bigger loans quickly drained the pot. Loans over $2 million accounted for less than 2% of total volume but sucked up more than a quarter of the cash available, according to data released by the SBA.
“Most of us in rural America, most of the businesses, we know each other,” Todd said. “We’re all in this together in a small community; we understand that we are so interrelated.”
Buffalo Dental Clinic was another successful early applicant, according to owner Dr. Matthew Hein.
“They tried to make it as easy as possible, and it helped to have somebody local to just be able to help us get through it,” he said.
“It was rewarding,” Lawrence said. “As a banker, I want to do everything in my power to be able to deliver for our customers, for our town.”
As the first-round application bonanza wore on, financial blogs picked up on the trend and began to advise prospective borrowers to seek out smaller banks, even if they didn’t have a pre-existing relationship. Some tried – Lawrence said he received loan requests from businesses across the country.
“I’m not going to drop a customer that we have in Buffalo that I know, that I work with, that I shop at their store, to help someone in Virginia that tracks me down through the computer,” he said.
A similar spirit of community collaboration guided some local businesses to not seek a loan in the first place.
Margo Brown hasn’t opened the doors at Margo’s Pottery to customers for more than a month. She could technically admit a limited number of customers under Gov. Mark Gordon’s current executive orders but said she didn’t feel secure in her ability to keep her employees and customers safe.
Still, Brown decided to not even apply for the PPP.
“There’s a lot of people that really, really need it,” she said. “And there’s not a lot of money. I felt like I can get by.”
For many small businesses, the loans offer a critical respite, Todd said.
“Most retail businesses are on a very fine line because, without the revenue, I can’t pay my people, which is my No. 1 priority,” he added. “I can’t pay the overhead of keeping the lights on.”
Hein’s dental clinic had to survive several uncertain weeks before the loans became available after the American Dental Association directed practitioners to only offer care to emergency patients.
“Our plans weren’t great that time,” he said. “Just kind of, ‘We’re gonna try to make do with what we can and hope for the best.’”
Despite the local banks’ success in the first round of lending, not all businesses were able to benefit from the program. The SBA did not release complete eligibility rules for self-employed business owners or sole proprietors until two days before the money ran out.
Those types of businesses make up the bulk of the roughly 50 applications Lawrence said he had on his desk last week awaiting the second round of funding. Both he and Reimann encouraged clients to continue submitting applications during the lull. Speaking on Monday, Reimann advised companies that haven’t applied yet to act now and be aggressive in pursuing funds.
While roughly 1.6 million loans went out nationwide in the first round of funding, the SBA estimates that there are about 30 million small businesses nationwide.
“I’m nervous,” Lawrence said ahead of the second round. “I anticipate (the funding) is going to go even faster.”
Within minutes of opening the floodgates Monday morning, the SBA’s online platform crashed under an onslaught of applications, just as it did during round one.
Both Reimann and Lawrence stressed that loan forgiveness is not guaranteed under the program. According to current SBA guidance, at least 75% of funds received must be spent on worker salaries. Business owners also must maintain the same number of employees if they don’t want to be left with a hefty debt obligation.
Lawrence estimated that just 10% of the business owners he spoke to expressed any concerns about forgiveness.
“There’s a fair amount of borrowers out there that just think it’s free money,” he said. Until they provide documentation showing that the money was spent appropriately, “It’s not – it’s a loan.”
Guidance from both the SBA and local health experts has continued to change on a near-daily basis for more than a month, creating a pervasive atmosphere of uncertainty as bankers and borrowers alike try to plan their financial futures.
Brown said she doesn’t know when she will feel comfortable opening her Main Street shop again. Still, she’s acting with optimism: In the past few weeks, she started making new pots.