The Paycheck Protection Program has been top of mind for many lenders, particularly banks. ABF Journal learned about the experience of bank-owned asset-based lending groups with the program as well as expectations and concerns for the future in conversations with four leaders in the industry.
In the months since the Paycheck Protection Program was introduced as a lifeline to businesses through the COVID-19 pandemic, financial institutions have been hard at work helping borrowers access these funds. With banks serving as some of the primary PPP lenders to small businesses, many lines of business within these organizations have been affected, including asset-based lending. To gain a perspective on the program from bank-owned ABL shops, ABF Journal spoke with leaders from PNC Business Credit, Fifth Third Bank, TD Bank and BMO Harris Bank to discuss the program’s evolution, its impact on business activity and future concerns.
How did the Paycheck Protection Program and other government lending programs affect your portfolio in the first few months of the pandemic?
Cynthia Meyer: The Paycheck Protection Program was helpful to a number of our borrowers in providing them with needed liquidity to support payroll and enable them to continue to maintain and help keep them in business and improve their liquidity.
Bill Stapel: The results so far have seemed to stabilize the liquidity of our borrowers and covered the losses they experienced due to the reduction in sales.
Jeffery Wacker: Numerous companies found the PPP program of tremendous assistance in retaining employees during the early phase of the COVID-19 lock-downs — periods where business closings and falling sales would otherwise have left the companies with no choice other than to dismiss staff. We are proud to have assisted more than 82,000 businesses that employ approximately 917,000 people nationwide through [the] PPP. Our average loan size was $102,000, ensuring we were able to help the small businesses who needed this assistance.
Quinn Heiden: Overall, the Paycheck Protection Program had a positive impact on our portfolio. The program was critical during the early period of the COVID-19 pandemic as it provided liquidity for our customers while they navigated through an unprecedented economic environment. Although it was a fluid process, the overarching theme from our clients was prioritizing the health and safety of their workforce. The additional funds essentially bought time for them to evaluate their operations and
defer difficult decisions regarding their employee base. While the short-term outlook remains unclear and more work lies ahead for our customers, the general feedback from them is that the program has produced better working capital management, adoption of better policies and procedures, and improved productivity and operating efficiencies, which will help them manage through future market disruptions more effectively.
What impacts did you see in June and do you foresee the rest of the summer?
Stapel: As the economy started to open back up, we have seen an increase in sales assignments when compared to sales assignments in April and May, where we saw a significant decrease in activity.
Wacker: We are all watching and monitoring sales across business and industry sectors to see the speed with which customer demand for products and services ramps back up going into the second half of 2020.
Heiden: The impact varied across industries, but in general, volume and demand picked up as states started to roll out their reopening plans. However, I believe market conditions will continue to be
volatile until a vaccine is discovered or significant steps have been taken toward a vaccine. Although the PPP was extended to 24 weeks, many businesses have exhausted these funds and begun the application process for debt forgiveness. A record number of new COVID-19 cases are being
reported each day in certain areas of the country, so it remains to be seen if companies can absorb a second wave of COVID-19 and do they have contingency plans in place to prepare for this scenario.
Meyer: No one quite knows what to expect. Certainly, we’ve seen some of our borrowers doing well through the pandemic. Unfortunately, many others have struggled. Neither we nor our borrowers are yet certain what is going to happen from this point forward.
How have these programs affected your business activity?
Meyer: From shortly before [the] Paycheck Protection Program opened through the first few weeks there, we were very focused on helping our borrowers secure that funding. So yes, it impacted our business activity in that it felt as though everyone was working 24 hours a day for about a month or so. We did still continue to conduct regular business, as we had a number of borrowers who weren’t participating in [the] Paycheck Protection Program and who had requests of us, and we continued to work with those as well.
Wacker: A huge group of people worked incredibly hard and long hours to process applications that in only a couple weeks far exceeded what we see in a year. Our PPP team worked around the clock to build and launch a digital PPP application on TD’s website in less than 72 hours. Since the launch of the program, PPP has required an “all-hands-on-deck approach” and we cross-trained around 5,000 TD employees to help with the effort to review and approve applications.
Stapel: In the first couple of months, everyone was trying to understand the program and how to obtain their etran number (meaning that they received approval for their PPP loan). It reminded me of the “Hunger Games,” as initially there were limited funds and it was first come, first served, so our lenders were spending a lot of time working with their customers gathering the needed information and getting them in the queue to be submitted to the Small Business Administration. In the end, all of our customers who applied were able to get their PPP loans, but it created a lot of additional stress during these uncertain times.
Heiden: Exceptional customer experience is a priority at BMO, and we viewed the Paycheck Protection Program as an extension of our broad product and service platform. In order to accommodate the overwhelming inflow of inquiries from customers, we assembled a large team of bankers across multiple business segments to manage the process. Speed to market was a critical factor given the limited availability of funds. We processed applications not only for existing clients but also for prospects that could not access the program through their current financial providers. As a result, BMO secured over $5 billion in total funding for more than 20,000 borrowers. The success of the program highlighted BMO’s commitment to its customers and provided an opportunity to establish long-term relationships with prospects who received PPP funds from our institution.
What are your biggest concerns about the program’s long-term effects?
Stapel: My biggest concern is what it will do to the overall economy by significantly increasing the amount of debt the U.S. has. I would have to believe that in the long run this will cause inflation. However, without the stimulus I am sure that we would have seen even more companies going bankrupt and higher unemployment.
There are a couple of concerns if the SBA determines the company didn’t qualify. The first is will the SBA enforce their penalties listed in the application, which are both monetary and criminal? If so, what are the effects to the borrower? Secondly, does the company have the ability to repay the loan if the debt is not forgiven? If not, this will significantly affect what we can do as the guarantee the government provided is a deficiency guarantee, which could force the situation into a sale process or liquidation in order to collect on the government guarantee.
Wacker: I think it’s too early to say what the concerns might be, but it’s clear that the program provided an important financing bridge for a number of businesses given the forgivable nature of the loans. I think we will know more when we actually see the loan forgiveness beginning to occur.
Meyer: At this point, we are focused on the forgiveness process and ensuring that we serve our customers well so that they understand the application process and the necessary supporting documentation to help us best help them obtain forgiveness.
Heiden: One of the biggest concerns I have is what happens when businesses fully exhaust their PPP funds. The multiple stimulus packages we’ve seen to date were structured to assist companies and consumers for a temporary period and were not meant to sustain the economy for an extended period of time. In the last few weeks, we’ve experienced several outbreaks throughout the U.S. which has prompted several states to roll back their shelter in place policies. This could have a lasting impact on businesses that don’t have the proper capitalization and liquidity to manage through a second shutdown. It is encouraging, however, that another round of stimulus packages are being negotiated that would provide critical capital to small and medium sized businesses to maintain payroll and cover other key expenses. •