Small banks helped businesses get more PPP loans
As visitors disappeared from Hawaiian beaches in late March and job losses hit all-time highs, local employers feared they would not get their share of federal paycheck protection program loans.
“We were paranoid,” said Rich Wacker, president of the American Savings Bank in Honolulu. The money to help payroll and other bills was first come, first served, and Hawaiians worried the mainland’s big banks would get all the money first.
“We knew we had to rely on ourselves, so it was everyone on deck to make sure we didn’t get shut out,” Wacker said.
With no branches of the so-called “Big 4” banks (JP Morgan Chase, Bank of America, Citigroup, and Wells Fargo) in Hawaii, local banks had teams of employees waiting to complete applications when the loan system collapsed. was put into service around 2 a.m. in April. 3, said Neal Okabayashi, director of the Hawaii Bankers Association.
“Some banks were working 24/7 and shifting people from their normal jobs to P3 loans. Anyone who might hit, audit or risk management or even human resources, ”Okabayashi said. “Finally, after the first five or six days, they said you could take Sunday off.”
These smaller, motivated banks played a big part in the PPP program, experts say, helping to explain why some states far from the first coronavirus epicenters in New York and California received the most aid from the $ 669 billion program. of dollars, including $ 320 billion added in a second round, which lasted until August.
“Some people were fortunate enough to have efficient banks to get the loans, but they weren’t necessarily in the places where the need was greatest,” said João Granja, associate professor at the University of Chicago. and co-author of a study of the effectiveness of PPP loans by the National Bureau of Economic Research, a nonprofit research organization.
The program gave employers up to 2.5 times their monthly payroll in loans, and allowed those loans to be canceled on condition that employers avoid layoffs and use the money to pay their employees and their rent or rent. mortgage.
According to a Stateline Analyzing data from the Small Business Administration, Florida and Hawaii had the highest proportions of incorporated businesses that received loans, about two-thirds in each state. Over 60% of all businesses in Connecticut, Georgia, Louisiana, and Mississippi have received loans. (Unincorporated businesses such as partnerships and single-person-owned businesses were analyzed separately.)
At the other end of the spectrum, less than 45% of businesses in Alaska, Delaware, New Mexico, North Carolina and West Virginia have received help.
Typically, big banks have been slow to start processing PPP loans, Granja said, paving the way for smaller, regional banks to act faster in some states.
In Mississippi, for example, more banks are local and regional, and they’re more likely to know about small businesses and offer help, said Gordon Fellows, president of the Mississippi Bankers Association. Many loans amounted to a few hundred dollars to pay for rent or utilities, and the most common recipients were restaurants, churches, and beauty salons.
“Having local banks is important,” Fellows said. “We have more bandwidth than [other states] do. People don’t think of Mississippi as a regional banking center, but we are.
“For me, the pandemic was an economic crisis as much as a health crisis,” Fellows said. “PPP was like a defibrillator that stopped the damage so we could continue. “
Mississippi had the lowest average loan amount, around $ 66,000. Michigan had the highest price tag, at around $ 125,000.
The fellows said it was not surprising that some loans were made to companies whose employees were eventually able to work from home.
“You have to remember that [that] at the start of the pandemic, no one knew what to expect, ”he said. “It sounded like the greatest crisis of all time and no one knew where it would end.”
Florida was an exception to the smaller bank trend, as Bank of America processed the most loans there, although most stepped in in the second round from late April, when big bank programs were up and running. Bank of America has over 200 branches in Florida.
Many small businesses and organizations in Florida heard about the program’s launch and immediately signed up, said Christopher McCarty, director of the State Bureau of Economic and Business Research at the University of Florida.
But Bank of America didn’t process loans nationwide for a week because it and other big banks wanted to develop a system to upload loan application documents for further review.
By that time, the money was already exhausted. The first $ 349 billion was used up within two weeks, and Bank of America made fewer than 10,000 loans during that time despite hundreds of thousands of applications in Florida and other states. With more preparation, the bank processed more than 300,000 loans in the second round which began on April 27.
The first round of funding was chaotic, with little time to prepare, and small banks were able to manually enter loan applications as the big banks planned their response, said Ian McKendry, vice president of public relations at the American Bankers Association, a trading group.
But the second round helped balance things out, he said, and generally most businesses that wanted a loan were able to get one, he said. The program ended in August with $ 130 billion unspent.
“The fact that there was still $ 130 billion on the table tells you that anyone who wanted one could probably get one,” McKendry said, citing a National Federation of Independent Businesses. investigation in May, showing that 80% of its small business members had applied for PPP loans and 90% had received one.
The survey found that around 28% of recipients struggled to maintain required endowment levels without repaying loans, while 38% struggled to spend the money within eight weeks, also a requirement.
It turned out that around 90% of the jobs protected by PPP loans did not need protection and would have survived anyway, according to the study by the National Bureau of Economic Research, which compared companies that received loans to those who requested but did not get them. before funds run out.
Still, the program has undoubtedly saved jobs and even where it hasn’t saved jobs, it has helped some businesses, said Granja of the University of Chicago. Injecting money for rent and other bills may have kept some businesses open.
Some small businesses were in desperate need of the money. Larry Bagnera, the owner and sole employee of his LaVilla jewelry store in Revere, Massachusetts, received $ 15,000 in PPP loans using the regional Citizens Bank.
“This money helped, it helped a lot, but it went fast,” Bagnera said. “I have used up all my savings and after 27 years in business, I won’t be able to stay open any longer. Store opening hours are limited by coronavirus restrictions and customers are afraid to shop, he said.
In most states, full-service restaurants were the most common recipients by number. In Florida and Hawaii, real estate agencies, which often operate vacation rentals in tourist destinations, were the most common, the Stateline analysis found. In Maine and Alaska, fishing-related businesses were at the top of the list. Farms and ranches were the most common beneficiaries in Iowa, Kansas, Montana, Nebraska, North Dakota, and South Dakota.
Unincorporated employers such as farms and legal or medical partnerships have also received loans. In the agricultural states of North Dakota and South Dakota, 12% of unincorporated businesses obtained loans, a Stateline analysis of loan and tax return data found. Cattle ranches in South Dakota and grain farms in North Dakota were the most common beneficiaries.
In New Mexico, restaurants, law firms and dental offices topped the list of recipients. But only 41% of state businesses have received loans.
New Mexico has worked hard to raise awareness of PPP loans through a business relief hotline, webinars, and social media and television ads, said Bruce Krasnow, spokesperson for the Department of Economic Development of the United States. ‘State. But New Mexico has less access to banking services than some other states.
“New Mexico has many small and small businesses that don’t have strong banking relationships,” Krasnow said.
Hawaii has had no problem recruiting small businesses, Wacker said. “There was general recognition that visitors were leaving, and everyone knew what that meant for a place like Hawaii.”
One of the Hawaiian companies seeking help was Kuleana Consulting, which helps developers preserve the sacred burial sites of Native Hawaiians and other historical artifacts during construction. Things looked dire in late March and early April.
“Development was at a standstill. We were very worried about what was going to happen to us in the future, ”said Jack Kelly, who assists the five-person firm with accounting and other services. Kelly applied on the first day the PPP funds were available, but despite the efforts of the local First Hawaiian Bank, the PPP funds ran out before the company’s application was approved. The company was forced to lay off its five employees.
Despite the layoffs, Kelly was pleased with the support from First Hawaiian Bank. “They were very good, they always answered the phone and gave us answers,” Kelly said.
The $ 33,000 was finally paid out in the second round of funding in May. At that point, he was in dire need of it, Kelly said, as the company had to rehire and pay its workers for new projects and the money was running out.
“We were forced to take a month off. This month was expensive. The bills keep coming in, ”Kelly said.