Local bankers working to secure financial lifelines for Spokane-area businesses say a new round of federal relief is desperately needed, or the hardest hit companies will not survive until a COVID-19 vaccine becomes widely available.
Even as they hope for another round of aid, the bankers continue to struggle with changing – and sometimes confusing – rules from the U.S. Small Business Administration about resolving forgiveness for the fist two rounds of the Payroll Protection Program, or PPP, funding. That uncertainty, they said, could give business owners another reason to close their doors.
Jack Heath, president and chief operating officer at Washington Trust Bank, said his organization helped secure more than 5,000 loans through the PPP program and that combined $1.3 billion was used as intended to keep employees paid and businesses open. But that funding was gone before the latest round of coronavirus-caused shutdowns.
“This is the first time in the history of our bank that we have seen the economy impacted with such a broad mix of businesses where there is nothing they can do to drive business until the vaccine comes on line,” Heath said. “We aren’t expecting people to be back until the end of the second quarter or into the third quarter of next year.”
The Washington Post reported Thursday that some Republican lawmakers, after fits and starts, had signaled a willingness to negotiate around a $908 billion stimulus package proposed by Democratic leaders. The proposal would provide about $280 billion for another round of PPP, some $160 billion for struggling state and local governments, and fund federal unemployment benefits at $300 per week to replace the $600 per week benefit that expires at the end of this month.
Ezra Eckhardt, president and CEO of Spokane Valley-based STCU, said he believes up to a third of local businesses could permanently close without another round of relief.
“We have found ways to be resilient in times of crisis in the past. If we are smart about how we deploy the solutions, we will come out better as a country,” he said. “I really wish that Congress would be focused on proactive solutions designed to support small businesses as opposed to getting stuck in partisan politics.”
Eckhardt, Heath and Greg Deckard, president and CEO of State Bank Northwest, said federal regulators need to focus any new round of relief on restaurants, hotels and hospitality-related businesses that have suffered the most under state-ordered shutdowns.
“Spokane is such a great community. The outpouring of support for local businesses this year has been appreciated,” Deckard said. “Optimism was returning. Now, with this latest wave of shutdowns, restaurants in particular are struggling to adjust their business models once again.”
Deckard, who also serves as treasurer for the Independent Community Bankers of America, said the federal management of the first two rounds of PPP loans continues to confound bankers to the point that some institutions may refuse to be take part in a third round unless the SBA clarifies a number of issues.
For instance, State Bank Northwest secured 451 PPP loans that totaled about $48 million that saved about 4,500 area jobs. Deckard said that one of his first clients that sought forgiveness for the PPP loan has not been approved. However, another client who submitted paperwork just last week received notification that the loan will be converted to a grant that will not have to be paid back.
“There is no methodology, that we can determine, of when they are going to act on a forgiveness application,” Deckard said. “I have borrowers who want to make decisions for their company. The speed on which their forgiveness is decided is holding up their strategic decisions.”
The stimulus program was created in haste with the idea it would provide funding to business owners to keep employees off unemployment rolls. Deckard said the goal was met, but the SBA continually changed rules about how long businesses had to spend the money and for what.
“I think for round three to work, (SBA officials) have got to resolve the remaining challenges of forgiveness for the existing loans,” he said. “With what we are putting the businesses through, why would you go through that again without knowing the forgiveness results of your existing loan?”
Finer details, such as whether businesses that already received PPP money would qualify for a third round, and how long they could use the money and what would qualify as legitimate expenses, such as payroll and rent, all need to be ironed out.
Deckard said he’s learned the SBA is considering using a different test, such as requiring businesses to show they had at least a 35% drop in revenue, to qualify for the next round of relief. The proposed legislation also may provide some relief to public venues, such as the Spokane Arena and concert houses, that have had to shut completely.
Both Heath and Deckard agreed that the SBA should automatically forgive all previous PPP loans of $150,000 or less. Current guidelines call for forgiving loans of $50,000 or less.
Eckhardt said STCU generated about 1,200 PPP loans that provided about $32 million. The average loan size was about $38,000, he said.
“These are not the people getting $10 million,” he said. “They were trying to get two or three months of payroll for four or five employees.”
Except for the forgiveness headaches, Eckhardt said, the first two rounds were “fabulous.”
“It needs to have rules and parameters, but I thought the speed with which they got it deployed was on target,” he said. “There is going to be quibbling and rehashing of the PPP for 10 years. But, this was a vehicle to get dollars into people’s hands quickly.”
Heath said whatever local businesses that haven’t closed already are in dire need of another shot of relief, or it could take years to recover from the resulting economic devastation.
“I feel we are permanently going to have closures of small businesses,” Heath said. “We are going to lose the engine that drives our economy, local jobs and state tax revenue that provides needed services.”
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