As published in Toledo Business Journal - April 13, 2020

Closed stores in downtown Perrysburg highlight the pressures faced by small business owners from COVID-19

CARES to rescue many small businesses and jobs

Payroll Protection Program provides $350 billion in first round for companies through the SBA

On Friday, April 3, the Small Business Administration (SBA) began accepting applications from small companies across the country for $350 billion of loan funds through its Payroll Protection Program (PPP) aimed at keeping hundreds of thousands of businesses alive and millions of workers employed.

With all of the difficulties of putting this large, unprecedented program in place, the relief to small businesses and their employees is a critical component for rescuing the nation’s economy.

The PPP application form for access to this $350 billion of funding was released to banks and companies late in the day on Wednesday, April 1 — or less than 48 hours before many banks charged with implementing this large lending program would begin accepting these applications from hundreds of thousands of businesses. As a result, many banks limited loan applications to current business banking customers.

Each bank accepting applications had to rush the development of new computer processing software and systems for managing the crush of customer applications that began only hours after obtaining rules and guidance from the SBA. And after this guidance was provided, change after change continued for days, resulting in confusion and difficulties for banks and small businesses.

It is certainly not a surprise that there has been a period of significant chaos for banks across the country and their small business customers.

Small business owners in every state learned that the $350 billion of PPP loan funds would be provided on a first come, first served basis and would likely run out. With the limited amount of time that banks had to obtain information and approvals from SBA and then implement this program, many were simply not ready when the program launched. Many small business owners already facing desperate situations now faced even higher levels of stress as they struggled to deal with issues involving the PPP filing.

Even before the Payroll Protection Program was opened for applications, industry professionals and leaders in Washington realized that $350 billion would not be adequate to meet the needs of small businesses, especially with over 275,000 applications filed in the first several days. A second phase providing up to an additional $250 billion of funding began moving forward in the Department of Treasury even before the public launch of PPP’s first phase.

As the program was within hours of launch in early April, Toledo Business Journal interviewed Alex Gerken, senior vice president, senior commercial banker, Fifth Third Bank as the institution was preparing for an onslaught of applications from small business customers.

Gerken spoke to how the CARES Act is set to help small businesses with the Payroll Protection Program in the form of loans for small businesses with fewer than 500 employees.

Gerken began by sharing that PPP is the most broadly based loan program that he and other professionals in the banking industry have ever seen from the SBA.

In addressing the eligibility requirements for businesses interested in obtaining an SBA 7(a) loan under PPP, Gerken said, “For the most part, the eligibility requirements – in general – are that your business has less than 500 employees and ultimately that the loan funds are to support payroll related expenses, and in addition include rent, or mortgage payments. So general payroll, employee benefits, and anything out of pocket that the businesses are paying for to support the employees over a 90-day period beginning February 15 through the end of June 30.

“Unlike most SBA loans, there are very few restrictions. To qualify for a normal SBA loan, you have to have been told no by other financing sources. That eligibility requirement has been removed in this case. They’ve also removed the personal guaranty requirement of any owner and collateral requirements,” continued Gerken. “So really to be eligible – in general terms because there are a few very minor qualifications here and there – you have less than 500 employees and you have to plan to use the funds to support business payroll and several other expenses over that same timeframe. It’s the most broadly based loan program I’ve ever seen from the SBA, which is why we are anticipating a lot of activity here.”

Gerken also explained that the application process differs from the typical SBA 7(a) loan process as it does not include information such as financial statements, tax returns, projected P&L statements, loan history, personal financial statements, resumes, etc.,

“None of that information was required at the time of application. Basically, all that is going to be required is some verification, some personal verification of the owners over 20%, and then some form of verification for the loan amount being requested. And there is a calculation that it’s basically two and a half times the monthly payroll, benefits, and that is what the businesses will qualify for,” said Gerken. “We’re not collecting personal financial statements— we’re not collecting tax returns, or collecting any projections. Business owners will basically have to attest that their business was negatively impacted by COVID-19; that the funds will be used for employee payroll, utilities, and rent; and they’ll have to attest that they aren’t planning to apply for another SBA loan between now and December 31 of 2020.”

Gerken noted that approval isn’t automatic, but as long as you can attest to those requirements, the loans should be approved. In general terms, an SBA application takes anywhere from two weeks to a month to get a firm approval and funding for a loan. According to Gerken, these PPP loans are approved and funded by financial institutions directly, so the loans do not need to be sent to the SBA for approval.

“We are approving them. Once we get an SBA authorization number issued, the SBA will guarantee repayment of these loans. So we’re doing that on behalf of the SBA. The loans could be approved in a matter of days or maybe even hours,” said Gerken.

For the loan to be forgiven by financial institutions and the SBA, Gerken noted that the financial institution must confirm that the company did spend the funds on payroll-related expenses, rent, or mortgage payments.

“Once we have been able to confirm that, we will then submit that confirmation back to the SBA and the bank will then be reimbursed. The loan will be forgiven to the bank or the bank will be reimbursed by the SBA for the loan proceeds,” explained Gerken.

“The SBA expects a great volume of applications to be submitted and banks and other financial institutions are expecting significant amount of activity with this program. They really want you to focus on customers that you already work with and that you already know. We’re getting a lot of phone calls from people who actually don’t work with us saying, ‘Hey, I want to apply for this loan.’ With all the volume that we expect in our system, I encourage folks, first of all, be patient with your financial institution because the rules are changing as we go. But then secondly, make sure you’re working with your main financial provider who already has that information on-hand and ready to go,” concluded Gerken.