Despite frustrations, loans are reaching businesses

Short-term government loans are beginning to reach area businesses impacted by the COVID-19 pandemic despite what some lenders describe as a “clunky” and somewhat frustrating loan application process.

“‘Clunky’ is probably a generous word,” said Cord Polen, president and CEO of Alliance Bank in Cape Girardeau when asked to describe the Small Business Administration’s Paycheck Protection Program (PPP).

The program is designed to funnel up to $349 billion in forgivable loans to small businesses and self-employed workers to help support business payrolls during the pandemic. The coronavirus has temporarily closed thousands of businesses and added millions of American workers to the nation’s unemployment roles.

The loan program is part of a $2.2 trillion stimulus package the federal government is using to boost the U.S. economy and support the nation’s small businesses. Loans are 100% forgivable as long as they are used for qualified business expenses.

“What it really is, is a grant program disguised as a short-term loan program if it works the way it’s supposed to,” Polen said, adding that as of Tuesday afternoon Alliance Bank had submitted “well over 100” PPP loan applications to the SBA.

Challenges

The loans, which are intended to cover up to eight weeks of payroll and other qualifying business expenses, are guaranteed by the federal government so there is little or no risk to lending institutions. However, Polen said he and other local bankers have been “frustrated” by some of the program’s processes.

“He (President Donald Trump) signed the law into effect on Saturday, April 4, and here we are 10 days later and they’re still rolling out rules and guidelines that keep changing,” he said. “Our customers are asking questions that we can’t answer and, if we do, our answers might be wrong the next day.”

On Tuesday, Polen said he received “at least two emails from folks involved in the process.” The first email included a set of rules pertaining to certain aspects of the PPP “and this afternoon those rules changed, so it’s an ever-evolving process.”

One of the biggest initial challenges, Polen said, was navigating the SBA’s 17-page online loan application tool and he credits Brian Rivenburgh, community bank president of Southern Bank in Cape Girardeau, for providing some insights into the application process. Polen and some of his staff were attempting to upload applications through the SBA portal when the loan program began earlier this month “and we got stumped multiple times. It was our understanding Southern Bank had been submitting applications smoothly for many hours, so I was able to contact Brian who gave us some helpful hints on how to do things a lot smoother and quicker. Without his help, we might still be sitting here scratching our heads.”

Most of the application uploading “kinks” have now been resolved and “it seems to be a much smoother process than what it was a week ago.”

Locally

Montgomery Bank, which has locations in the Cape Girardeau, Jackson and Sikeston areas, as well as facilities in the St. Louis region, had received $88.5 million worth of PPP loan applications during the first 10 days of the program. Approximately $50 million had been funded as of Tuesday, with the balance still being processed. Of those loan applications, approximately $51 million worth were submitted by businesses in the Cape Girardeau area, according to Montgomery executive vice president Jim Limbaugh, who said about half of that amount has been funded so far.

“It’s been just unbelievable the volume we’ve had,” Limbaugh said, adding the bank hopes to have all of the applications, which have ranged from $2,100 to $6.9 million, completely funded by the end of this week.

“It has been very, very time consuming and labor intensive,” he said of the application uploading process, but the end result will be worth the effort if the program can help keep people employed.

“The faster we get this money out to the businesses, I think we’ll see unemployment numbers decrease,” he said.

One unusual aspect of the PPP, Limbaugh said, is loan forgiveness won’t be verified until the end of each loan’s eight-week “life span,” when each lending institution will verify how loans were used. If a business spends loan money on unqualified expenses, the portion that does not qualify must be repaid over an 18-month period with a 1% interest penalty.

“Banks will be the ones to sign off on the loan forgiveness component,” he said. “Based on initial loan applications, we’ll do a very high-level audit. We don’t have the ability, or the time, to get down into minutiae. It’s not like a standard audit.”

High demand

The Bank of Missouri, which has 32 locations across Missouri, with several in Southeast Missouri including Cape Girardeau and Jackson, received roughly 850 PPP loan applications during the program’s first 10 days. As of Monday night, 726 of them — valued at close to $89.2 million — had been approved, according to Karin Bell, the bank’s senior vice president of SBA lending.

“We’ve been getting applications for every business type,” she said. “And people are starting to get their money.”

Of The Bank of Missouri’s 470 employees, only 10 are officially part of the bank’s SBA lending department.

“But when this program came out, and knowing what the demand would be, our leadership said it was going to be all hands on deck and everybody was going to move this along,” Bell said. “We’ve been doing whatever it takes to serve our clients.”

Beginning late last week, the nation’s banks and other lending institutions started accepting PPP loan applications from independent contractors and other self-employed individuals, and although The Bank of Missouri and other lenders have begun processing those applications, Bell said the SBA hasn’t finalized guidelines for those applications.

“We’re still waiting on guidance from the SBA,” she said. “That’s one of our hang-ups and a little bit of a challenge for us right now. We think we’re pretty sure we know how to do it, but we want to be careful because we don’t want to undercalculate a loan value. My biggest concern is that somebody doesn’t receive enough money.”

As of Monday, the SBA had allocated more than $200 billion of the PPP’s $349 billion loan pool.

“We think it may run out in the next week or so, but SBA is going back and asking for more funding from Congress for the program,” Bell said. “I would hope they provide it.”

For more details about the Small Business Administration’s Paycheck Protection Program, visit www.sba.gov/paycheckprotection.

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