Local banks are gearing up to take applications from Louisiana businesses seeking a slice of the $284 billion in federal loans that a government agency says will be available starting next week to help mostly small businesses survive the coronavirus pandemic.
The Small Business Administration has been tweaking rules for the program since Congress carved funding for a new round of Paycheck Protection Program loans out of the coronavirus relief package approved in late December. Two previous rounds of funding, which ended in early August, totaled more than $525 billion across 5.2 million loans nationwide. In Louisiana, more than $7.6 billion in loans went to nearly 78,000 businesses.
"We have been getting a lot of emails and calls from interested customers, but without knowing exactly how eligibility will be determined, it is difficult to gauge what the real demand is going to be," said Chris Ferris, CEO of Fidelity Bank. "I am just hopeful that the guidance is very clear about who is eligible and who is not so there is little debate on who should apply and who should not,” he said.
During the first round of loans last year, confusion about eligibility and on-the-fly changes made by the government hindered loan approvals by participating banks.
"Similar to the first round of PPP loans, information took a few weeks to be disseminated to the banks. I expect the same timeline with this new bill," said John W. Bordelon, CEO of Home Bank, which has received a couple dozen inquiries about the program. "Not only will it take a little time to finalize, but in the first two rounds of PPP Loans, the rules were adjusted constantly."
The SBA released guidelines for this round of loans on Friday and expects to begin processing applications on Monday. The SBA will initially accept only applications submitted by community financial institutions, or CFIs, lenders whose customers are minority-owned and economically disadvantaged businesses. Starting Monday, applications for first-time borrowers submitted by these lenders will be accepted, followed by applications for second loans on Wednesday.
By late next week, the program is expected to open for all eligible borrowers from all participating lenders.
"We expect high processing volumes in the early days of the program and will utilize technology for processing applications," said Ryan Finnan, consumer banking president at Investar Bank. "Clients have expressed interest and the interest is growing daily. Every day we are receiving emails and phone calls from clients related to PPP."
Demand isn't necessarily expected to swell as high as it did months ago as the pandemic took hold and businesses were shut down to curb the spread of the virus before being allowed to slowly reopen at limited capacity.
"While we don’t expect the initial demand for this latest round of PPP funding to be quite as urgent as it was last spring, we recognize how important it is for many small businesses to access additional funding," said Danny Montelaro, Baton Rouge market executive at Regions Bank. "It is still too soon to give a complete picture, though, on demand. A lot of companies learned how to adapt and move forward, sometimes against all odds, last year. And, I would say many companies are on stronger financial footing than they were, say, back in April."
As with the first two rounds of the PPP, applications must be submitted online at banks and other SBA-approved lenders.
Based on the SBA's guidelines, existing borrowers with no more than 300 employees and suffering at least a 25% drop in quarterly revenue may be able to receive up to $2 million in a forgivable loan. First-time borrowers with no more than 500 employees may get up to a $10 million loan.
Restaurants and other hard-hit businesses, which have been operating with limited capacity for months, could seek a forgivable loan up to 3.5 times monthly payroll costs. All other businesses could get up to 2.5 times monthly payroll.
Applications and approvals are due by March 31. Businesses have up to 24 weeks to spend the money. The five-year loans, based on payroll expenses for either 2019 or 2020, will have an interest rate of 1%. Sixty percent of the loan must be used for payroll to qualify for forgiveness. Companies can use the rest for employee health benefits, mortgage interest, rent, utilities and expenses that are essential to business operations.
In the first two rounds in Louisiana, $5.3 billion went to about 9,000 businesses, receiving loans of $150,000 or more. Another $2.3 billion in loans of less than $150,000 went to 68,937 loans. The larger 9,000 loans supported nearly 500,000 jobs through the several weeks covered by the program, according to U.S. Small Business Administration data.
In the first two rounds, the health care and social assistance industry cluster in Louisiana was approved for the largest number of loans, more than 1,300 totaling $827 million. More than 1,100 construction companies were approved for $634 million while more than 1,000 professional, scientific and technical services businesses had $589 million carved out. Manufacturing was allocated $552 million across more than 700 business. Mining, which includes oil and gas, had $379 million allocated across 374 companies in Louisiana. Retail trade split $388 million among more than 750 companies while wholesale trade accounted for $282 million across more than 500 businesses and transportation and warehousing accounted for $263 million across more than 350 companies. Businesses in accommodation and food services, which includes restaurants and hotels, split $374 million in paycheck protection money across 787 companies.