A major stopgap federal relief program during the virus crisis, the Paycheck Protection Program, is winding down its second round, with no third round anticipated.
It’s too soon to tell how far it will go to aid businesses hit by the economic lockdown, but it’s not too soon for insights into how the process has gone and what problems lie immediately ahead.
Lack of clarity in the application process, administered by the Small Business Administration, has been a problem from the start, “and it is still not clear,” says the point person for one of Alabama’s most active filers of PPP loan applications, Paul Schabacker, executive vice president in charge of the PPP program for Birmingham-based ServisFirst Bank. “For example, there is going to be a huge crush of businesses asking for forgiveness after eight weeks, and there is very little clarity on the forgiveness process.”
If the PPP funds are used properly during an eight-week period after disbursement and the business does not decrease its workforce or unduly cut salary levels, the loan will be forgiven entirely. Auditing of how the funds have been used should be fairly straightforward, says Schabacker, but the rules have not been made final.
“Everyone wants know how to do it, and my best guess is it should be simple: how the money was spent on a cash basis, an accrual basis. Things like that are pretty basic stuff. But we don’t know definitely, and there can be more complex issues where it gets murkier.”
One hopeful sign, on the front end of the PPP program, is that the demand for the loans has tapered to slow, compared to the early rush.
“We have processed a little under 20 percent of the number of applications” in the second round compared to the first round, said Schabacker on May 7, with the program expected to run out of funds in this week beginning May 11.
Schabacker says the lower volume is probably owing to lower demand, at least in Alabama, which is ServisFirst’s dominant market, covering all of the state.
On May 5, after a hectic four weeks covering all of the first round and most of the second, ServisFirst processed 3,700 PPP loans, with a total value of over $1 billion.
The size of the ServisFirst-filed loans “ranged from $300, the smallest, to over $8 million,” says Schabacker, with “half under $100,000.”
ServisFirst is a good yardstick by which to measure PPP activity in Alabama both because of its statewide market and because it has been one of the most active PPP lenders in the country.
The SBA does not offer a database of PPP bank lenders. But 72 hours after the program’s launch on Friday, April 3, an SBA official told the Washington Post that Union Bank and Trust, in Lincoln, Nebraska, had filed the country’s second highest number of PPP loans at the time, 800.
“We filed 1,049 that weekend,” says Schabacker. “On that first weekend, beginning April the 3rd, we worked 24 hour shifts, 30 people working overtime shifts overnight. For the month of April we paid some 40 employees 120 hours of overtime.”
A key to ServisFirst’s rapid handling of applications, says Schabacker, was that the bank had a contract software vendor working on an online filing portal by March 30th, three days after the PPP program became law.
At the other end, inputting data into the SBA’s electronic transaction system, it took a while for the kinks to be worked out, with applications having to be filed manually at the start.
It also took a while for the SBA to open its exchange system to more than a handful of employees. The number of ServisFirst employees filing applications went from three on the first day to over 20 by Sunday, April 5, says Schabacker.