Local banks are preparing for the full-scale rollout of a new round of Paycheck Protection Program loans this week, which will deliver a fresh round of cash to beleaguered Clark County businesses. The $900 billion federal COVID-19 relief bill passed in December included $284 billion to reopen the program.
The low-interest loans, which are supplied by financial institutions and guaranteed by the U.S. Small Business Administration, are intended to help small businesses survive the worst of the pandemic while keeping their staff employed. They can be partially or fully forgiven if the funds are spent on specific expenses — primarily payroll costs.
The first round of PPP loans opened up in April and was funded by a $349 billion pot of money from the federal CARES act. Lawmakers topped off the program with a $320 billion infusion a few weeks later after the first pot of money ran out.
More than 6,400 Clark County businesses received PPP loans in the first round, according to data released by the SBA in July. The loans collectively saved 66,509 jobs, based on estimates provided by applicants — more than a third of the jobs in the county, based on pre-pandemic totals.
This week’s second round has also been referred to as the “second draw” to distinguish it from the $320 billion booster. It will allow businesses that already received a loan the first time to get a fresh bite at the apple.
The first PPP round was notorious among banks and business applicants for being an exhaustively convoluted process. The economy was reeling from the shock of the first few weeks of the pandemic, and the program was rushed into the application phase while the SBA was still sorting out the particulars. Rep. Derek Kilmer, D-Gig Harbor, analogized it at the time to building an airplane while flying it.
The application forms and SBA guidance went through multiple rapid iterations, and Riverview Bank executive vice president and chief banking officer Kim Capeloto described long days, late nights and repeated calls to confused clients to make sure applications stayed on track.
This time around, most of the plane is already assembled. The SBA provided a single application form to banks last week, Capeloto said, and they’ve stuck with it. The process has also moved entirely online, allowing banks to set up web portals for applicants.
“Communications with SBA in this go-round have been far fewer, which is a good thing,” Capeloto said. “That’s not a negative because they’re much more succinct.”
Clients will also be able to track their applications and loans through each stage of the process, according to Marc Timm, chief lending officer at Columbia Credit Union. That’s another contrast to last time when local business owners described the process as opaque apart from a single notification that the application had been accepted.
The new round comes with stricter rules to try to address the perceived shortcomings of the original program, including an overly-broad set of criteria that resulted in loans to larger-than-intended businesses, such as a $4.6 million loan to the Los Angeles Lakers (the team later returned the money).
Second-draw applicants must have 300 or fewer employees, rather than the 500-employee cutoff in round one, and the upper limit for loans has been lowered from $10 million to $2 million. Businesses applying for a second loan will also need to show a year-over-year revenue loss of at least 25 percent in at least one quarter of 2020. Businesses that did not receive a loan previously can still apply under the original terms.
The refreshed program is designed to take direct aim at the hardest-hit industries. Businesses are generally able to apply for up to 2.5 times their average monthly payroll cost, but restaurants, hotels and other businesses classified as Accommodation and Food Services can apply for up to 3.5 months.
“The SBA and treasury department have made this round a little more focused, as opposed to the shotgun approach of ‘come one, come all,'” Capeloto said.
Prepping for the rush
The new program is rolling out in a phased approach. Community Development Financial Institutions were allowed to begin submitting client applications on Monday, and eligibility expanded to small community banks of up to $1 billion on Friday. Everyone else can join in on Tuesday.
There’s likely to be a rush at the start because applicants are probably going to be concerned that the funding may run out again, Capeloto said. Riverview is in the Tuesday group, but the bank opened up its own online application portal Wednesday evening so clients could get started on the internal approval process, he said. It drew in more than 100 applications by Thursday afternoon.
Tacoma-based Columbia Bank received more than 5,000 applications in the first 36 hours during round one, executive vice president Lisa Dow said in an email, and she expects to see the same kind of volume this time around.
At Columbia Credit Union, Timm said he expected demand to fall somewhere between the extremely high pace observed during the first round of funding and the more measured flow after the $320 billion infusion.
Columbia Credit Union ultimately processed about 700 loans in the first round, and Riverview processed about 780.
It’s too soon to say what the breakdown of applicants will look like, but Capeloto, Timm and Dow all said they expected to see a mix of returning applicants and first-time borrowers – and they expected food and hospitality businesses to make up a large chunk of the group.
“Restaurants are, I think, the most critical issue right now,” said Columbia Credit Union CEO Steve Kenny.
Dow said Columbia Bank expects that a majority of applicants will be small businesses with 10 or fewer employees because the new round includes a simplified forgiveness process for loans totaling less than $150,000.
The new loans were a primary topic of discussion at Thursday’s Restaurant Roundtable meeting, a regular virtual gathering of Clark County restaurant owners. There wasn’t an official poll, but one of the group’s coordinators, Eric Sawyer of the Vancouver consulting firm BBSI, said he expected a large percentage of attendees to go for a second draw.
There is one potential catch: some businesses that qualified for an initial PPP loan may not be able to meet the 25 percent revenue loss criteria for a second loan. Trap Door Brewing owner Bryan Shull said his business falls into that category, and Uptown Barrel Room owner Dwayne Christensen also said he wasn’t sure if he’d be able to qualify, thanks to a relatively successful fall season.
The 25 percent figure is calculated using gross receipts rather than net income, Shull said, which means it doesn’t account for the work that was required to pivot Trap Door to a pandemic-era business model with weatherproof outdoor seating and other adjustments.
“On the net side of things, it cost a lot of money to get there,” he said.