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May 14, 2020

SBA’s Davis: PPP still open for business

SBA’s Davis on Wednesday’s chamber webinar: Now, he says, ‘We’re seeing money hitting the streets at a hefty clip.’
By Michael C. Bingham

The federal Paycheck Protection Program (PPP) administered by the U.S. Small Business Administration (SBA) still has money to lend, and the “hiccups” that plagued Round 1 of the initial CARES Act to provide emergency relief to small businesses in the wake of the COVID crisis have been substantially remedied.

So said Wendell G. Davis, the SBA’s regional administrator for New England, in a Wednesday afternoon Zoom conversation with members of the Greater New Haven/Quinnipiac, Shoreline, Madison and East Haven Chambers of Commerce.

The SBA rolled out the Paycheck Protection Program on April 3 as a direct incentive for smaller companies (less than 500 employees) to keep their workers on payroll. The loans were to be forgiven if the lender kept workers on the payroll for eight weeks and the loan proceeds were used for payroll, rent, mortgage interest or utilities.

The PPP program was channeled through private financial institutions, and the application process was slowed by what banks said was insufficient information on eligibility, application information and the reality that many banking companies moved their existing commercial borrowers to the front of the line. Inside of two weeks, some 5,000 banks processed about 1.7 million loans nationwide — and the original pool of $349 billion was gone in the blink of an eye.

Round 1 “was a race,” Davis said Thursday. “I didn’t like that race, and certainly small businesses did not like that race.”

During the third week of April Congress approved a second “tranche” of $320 billion to be added to the PPP lending pool.

“We’re done with Round 1 of the PPP funding, and we’re just over halfway through Round 2,” said Davis. “And people ask: Is the PPP program hitting its mark?”

Davis had a ready answer.

Between Round 1 and Round 2, “We have seen the average loan size go from $207,000 per loan in Round 1 come down to $79,000 per loan,” said Davis, “and since the newest data came out five days ago it has come down to $73,000” per average loan amount. To Davis, that means the PPP program is more accurately hitting its small-business target than in the first days of the initiative, when companies such as Ruth’s Chris Steak House were revealed to have been approved for eight-figure awards.

“What the new data tells me is, this is reaching small-business America,” Davis said.

In addition, he added, of the 2.2 million loan applications approved to date, 1.5 million have been for loans of less than $50,000. “If you take that up to $150,000 and lower, 90% of all loans are $150,000 or lower,” Davis said.

“So when you look at the overall data, this is getting down to Main Street USA, getting down to the smallest of the small,” Davis added.

He had better news, too: “We still have money left” as of May 13, Davis said.

Of the $320 billion allotted to the second round of the PPP, Davis said $120 billion remains uncommitted to date. “Over the last six or seven days, the ‘run rate’ has dramatically slowed down,” he said.

That cushion allows the SBA to be more deliberate, and more targeted, in its lending, Davis said.

“One of the focal points that I’ve directed our district office to focus on is some of the underserved [business] communities,” said Davis. “There are no groups too small for us to do outreach to.”

With regard to Connecticut, to date $6.7 billion in PPP loans has been approved for between 20,000 and 25,000 small businesses in the Nutmeg State, Davis said. By way of comparison, Davis said that in an average year the SBA’s flagship 7(a) loan program would lend between $220 million and $250 million to about 600 or so small companies. “And that would be a really good year,” he added.

The tsunami of small-business lending Davis sees as “a double-edge sword: I get excited that we’re having that impact [on so many small companies], but at the same time it’s sobering that there’s that much need out there and how devastating [is] the impact that COVID-19 has had on small businesses.”

Broadening the lending pool

Part of the success of the second financing round Davis attributes to the participation of more financial institutions including smaller community lenders. “The SBA in any typical year would have about 1,800 banks that they work with — that number’s now about 5,500 lenders that are out there” participating in the PPP program. That means more and smaller loans to more small businesses.

“That tells me that those community banks, those credit unions, those smaller lenders — they’re getting into their communities and they’re reaching small businesses.” More important, “Most of the banks are for the first time opening up to [borrowers] that they don’t have an existing relationship with,” Davis said.

The broadening of the lending pool has also reduced the turnaround time for small-business applicants, Davis said. “One of the hiccups the SBA had early on was that backlog” of unprocessed loan applications. “That backlog is gone. I’m not aware of one single [New England] bank that has a backlog.

In this second round of PPP lending, “We’ve provided a lot of liquidity to small businesses” in New England, Davis said. “We’re seeing money hitting the streets at a hefty clip.” What he didn’t need to add, but did: “There’s still a lot of need out there.”

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