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Bankers: PPP program has worked for intended purpose, but challenges persist

David Floyd • May 16, 2020 at 8:00 AM

First Horizon Bank has processed about 13,000 applications from small business owners through the Paycheck Protection Program — more than a year’s worth of work that the company has done in five weeks.

“We had people working nights, weekends,” said Gerald Hallenbeck, Northeast Tennessee Market President for First Horizon Bank. “I’m signing time cards for people who have 80 plus hours working because they were just kind of working around the clock. We were learning as we go. That was one of the challenges.”

Hallenbeck said First Horizon, which is headquartered in Memphis and operates about 270 bank locations across the Southeast, underwent a marked shift in operations during this period, refocusing its efforts to handle the influx of applications. Before the onset of the program, Hallenbeck estimated the company had five people who could submit loans to the U.S. Small Business Administration.

Now, that number is probably around 400.

“It was a total transformation of the company for about a five-week period where we just focused on the PPP,” Hallenbeck said.

The PPP program, created through the $2.2 trillion CARES Act, provides forgivable loans of up to $10 million for qualifying small businesses. At least 75% of that funding must be spent on payroll for the loan to be forgivable. An initial round of funding totaling about $349 billion was exhausted over a period of weeks, but Congress replenished the fund with a multi-billion dollar infusion in late April.

Although the rollout was hasty and there’s still some guidance that banks are waiting to receive from the Small Business Administration, local bankers believe the PPP has ultimately accomplished its aim of providing financial relief to small businesses, which have been struggling during the novel coronavirus (COVID-19) outbreak.

“On the private side, I know we can be critical of it, but they moved pretty fast for the government,” said Will Barrett, Chief Operating Officer for Bank of Tennessee. “Faster than I’ve ever seen. In fact there might have been some not perfect scenarios with the PPP loans, but the vast majority of businesses that wanted one have been able to get them. To me that shows the program worked for its intended purpose.”

Statewide, however, there are aspects of the initiative that officials would like to see adjusted in order to make the use of this money more flexible for small business owners.

“The concern we have right now as a industry is that Congress passed a strong piece of legislation with the intent of helping out small businesses,” said Colin Barrett, president and CEO of the Tennessee Bankers Association, “but what (the U.S. Treasury Department) has done is they’ve taken this and they added their own restrictions on it that make it more difficult for these small business loans to be forgiven.”

By the numbers

As of Thursday afternoon, the Small Business Administration reported that, during the second round of funding, more than 2.7 million loans totaling $193 billion have been issued through the PPP program, leaving billions of dollars left for borrowers that need a loan. The average loan size is about $71,000.

“More people are getting them than got them the first round,” said Shawn McKeehan, deputy director at the administration’s Tennessee District Office. “Loan amounts are smaller, but the businesses are smaller that are requesting them.”

During the first round of funding, the agency issued 1.66 million loans totaling $342 billion. About 34,000 of those loans were approved in Tennessee, totaling $6.5 billion.

As of May 8, the Tennessee Bankers Association reports that banks in the state made $9.25 million in PPP loans to 80,940 small businesses and self-employed individuals.

On a local level, First Horizon Bank reported that it had issued 225 loans totaling $53 million in Washington County, 208 loans totaling $32 million in Sullivan, 16 loans totaling $616,181 in Unicoi and 9 loans totaling $2.6 million in Carter. Of the 13,000 loans the company secured for small business owners, First Horizon reports that 22% of them went to women-owned, minority-owned and low- or moderate-income tract designated businesses.

Will Barrett said Bank of Tennessee has funded about $100 million through the PPP to more than 1,000 businesses across its operations, an effort that supported about 14,000 jobs. The majority of the business’s operations are in the Tri-Cities, which Barrett said is also where a majority of the PPP money issued by the institution has gone, but the bank also has locations in Nashville, Knoxville and one in North Carolina.

Suggested changes

The Tennessee Bankers Association is suggesting several changes to the program to make it easier for businesses to have their loans forgiven.

Those include reducing the 75% percent payroll requirement, allowing businesses to spend more than 25% of the loan on non-payroll expenses like rent and utilities; expanding the eight-week period in which funds must be spent to be forgiven, which the organization said can be a restrictive timeframe; and allowing borrowers requesting a loan totaling $1 million or less to certify rather than submit documentation that their loan was spent on eligible expenses, which is intended to ease concerns among small business owners about the degree of scrutiny they will receive for accepting money they need.

With stories surfacing early in the program’s existence about large companies managing to acquire loans through the program, Colin Barrett said the Treasury Department has responded by releasing “strong” reporting requirements and enhancing scrutiny on loans over a certain dollar value.

“Treasury’s newest guidance in reaction to the large corporations that got it is to scare the small businesses that actually need these loans,” Barrett said.

Assembling an airplane

The rollout of the program has been a lot like building an airplane as it’s flying, officials say.

“It’s been a little clunky, but it’s unprecedented that we had to implement a program within a week or so of the time the law was enacted,” McKeehan said, adding that the agency typically gets 30 to 60 days to rollout a new initiative like this.

The PPP is also much larger than other programs normally handled by the agency, and when the first round of funding became available, the agency said it issued more loans in 14 days than it had in 14 years.

Fundamentally, Will Barrett said the PPP managed to plug the gap for small businesses during a shutdown that was unprecedented in the financial history of the U.S.

“The bank’s concern and my concern going forward is how quickly do things return to normal, and what other lifesavers are there for small business?” he said.

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