Some Thoughts on the #PPPloans and other small business stimulus now that the funds have dried up (hopefully temporarily). Some overriding thoughts I have are 1. The method and some of the issues of getting funds out, 2. The purpose of the funds, and 3. Where we go from here. 1/x
On the methodology of the #PaycheckProtectionProgram I know given the data out there that loans seemed skewed towards larger "small" businesses. I think that stems from a number of reasons. The first being just how banks work. 2/x
Banks are generally fairly conservative, risk adverse institutions- particularly post the banking collapse in 2008/2009. Having worked in that industry during that time period, I got to see the impact of this collapse and how banks changed as a result. 3/x
One of those changes was getting back to building and maintaining relationships with their clients. When business loans started going bad, it was typically due to loans given to companies where the bank lacked a strong ongoing relationship. 4/x
When banks have strong relationships with their clients, they can start to see the warning signs and work with the business on making sure the loan does not go bad. When there is no relationship and the loan has not been paid in 90 days, then there is limited options 5/x
When the banks were deputized to carry out the #PPPloans, they first went to their current customers that they had relationships with as they knew their business and had built trust with them. However, lots of small businesses don't have a lending relationship with a bank 6/x
Which, depending on the bank, put these customers at the end of the line or in some cases made them ineligible. What we have found though is smaller community banks outperformed the larger banks in pushing through #PPPloans quickly 7/x
They had relationships with their client base (even those without existing loans) and worked to help their clients. Community banks are designed to help businesses in the communities they served. Thus they were more adapt to make this work vs BofA & Wells Fargo 8/x
The large banks generally served their larger customers first as those were the customers they had relationships with and were comfortable doing these loans for. That is why we were seeing such large #PPPloans happening. The banks also made more money doing this way too 9/x
Based on how the SBA compensated banks, larger loans were preferable to do because 1. you made more money and 2. they took about the same amount of time (maybe less) as smaller companies. I think the SBA should have just paid flat fees or limited the fees to avoid this 10/x
The second reason the methodology matters here is that these loans are SBA loans and banks that do more SBA loans or are more in tune with how the SBA works did better in getting loans through. Most banks can do SBA loans, but not all do it well. 11/x
Again this is where community banks had an advantage. They generally rely heavily on SBA lending when lending to businesses as that limits their risk. However, getting an SBA loan done is not an easy thing to do. There is a lot of work to underwrite these correctly 12/x
While the #PPPloan program simplified the underwriting of these loans, you still had to contend with the SBA approval system. Bigger banks may not have as many SBA trained loan officers ready to handle this, so it took bigger banks more time to get ready to do this 13/x
This lead to smaller businesses not being able to get in the system at larger banks and once in the system. I do need to tip my hat to Fifth Third Bank as they have done the best of the large banks in communicating and handling these loans 14/x
Back to community banks, we saw lots of success having clients get #PPPloans through community banks. They knew the SBA system, their loan officers were proactive and pushed loans through proactively. 15/x
In some respects that $350 billion dollars got allocated out to small businesses within two weeks is quite impressive given the limitations of software at the SBA and the changing guidelines. However, this left lots of small businesses without loans 16/x
I know that when gov't and the banks were trying to build an airplane while flying it was bound to run into issues. If the goal is to get cash to businesses quickly, there are better ways of accomplishing it. 17/x
That gets into my second point- the purpose of the #PPPloans. The goal of this program was to keep people employed. However, we have businesses facing different levels of pain and this program was not meant for all of them. 19/x
For hospitality businesses like restaurants that might have laid off their staff, the #PPPloan might not be the best option if your plan is not to hire them back on right away. Furloughed employees may be better off with the expanded unemployment 20/x
For those where business is slowing down or teetering on the edge, the #PPPloan is probably the best option on the table right now. I fear that too many business just applied and are now in the situation of not having employees to pay to be forgiven 21/x
Things like the #EmployeeRetentionCredit #ERC might be a better option in the long run for some business. I also think that the #PPP program needs to be adjusted to allow businesses to pick the start date of the 8 weeks vs. just went they get the cash 22/x
This also gets to the purpose- the #PPP loans were not meant to be a lifeline for the business; they were to help keep employees on the payroll. For some SMBs, payroll is the largest expense they have and getting these funds defacto keeps their business open 23/x
Small businesses need further lifelines. The #EIDL program was one of those, but that $$$ is gone now too. Additional lifelines will be needed if businesses are forced to be closed for an extended period of time. These closures have ripple effects in their supply chain 24/x
Businesses like organic farms or janitorial services are hit too when restaurants are forced to close for example. Some of those ripples have not been felt yet and when they do, now we have more small businesses that need help. The longer the shutdowns go requires more help 25/x
That leads to the next point-- where do we go from here. 1. we need more cash pushed out to businesses quickly. Doing this through payroll companies make sense as they are adept at doing this. 2. we need to make sure businesses are getting the right help that they need. 26/x
Not all support lifelines fit all businesses. Particularly for the smallest of businesses and sole proprietors, more assistance is needed here first. They got left out of the current round of #PPP funding, they need to be the first ones helped now 27/x
This is also a good time for the gov't to figure out better mechanisms of making this work. The #EIDL process is refreshingly real simple to navigate. Simpler processes are needed here as we look to support more businesses. 28/x
Finally, more changes in #taxes are needed here too. Retroactive payroll tax refunds, expanded biz credits that can be advanced on (R&D, FICA Tip, etc), etc. are place to start. Anyway we can shore up our small businesses with needed cash flow are critical now. 29/x
We are in a weird place where things are going really fast and slow at the same time. That incites panic and rash decision making. There is more that can be done, but a calm approach is necessary not to make the wrong decisions now. Step back and think about 30/x
what it will be like when we get back to "normal." Work through the decisions to be made now that will allow us to get back to that normal spot. Making careful decisions now ensure your business can make it in the long term. Avoid catching the panic. 31/x
Some decisions will be really hard, but necessary to ensure the business survives. However, in order to survive, these businesses need the gov't support to come quickly and in a form most suitable for their type of business. #PPP was a good start, but more is needed 32/32
