MaineStream Finance

Article Title: A Call to All Bankers: we know the self-employed and neediest were not served by PPP. Let’s do what is right – not what is best for us next time.

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As of Apr 15/16, the SBA PPP forgivable loan program was fully allocated despite thousands of loan applications still in process. BDN reports 1/10 small businesses received support. Top recipients: restaurants, hotels, law offices, and auto repair shops in Maine. A new allocation of $250 billion to $350 billion for PPP is in the works in Congress.

If you look at the average US PPP loan size, $239,152 per, the self-employed/sole proprietors did not fare well. That is roughly a business of $1.4 million in annual payroll costs – not counting other operating costs like costs of goods, etc. – and not your average self-employed. Maine banks and credit unions were fairer to all businesses with an average loan size of $157,000 or a company with annual payroll costs of $942,000 – but still not the self-employed (on average).

For this next PPP round or whatever it is called, let’s as the financial industry quit pretending we are out there doing this purely from the goodness of our hearts and for our concern for our communities. I am not attacking any one bank, or the SBA or Treasury, or our legislators – we love you all since we partner with so many of you and receive financial support from you (truth be told). The time that SBA and the banks had to implement was crazy – I applaud you in many ways and feel for you as you lost sleep and weekends. There are even some banks and CUs out there who did the right thing – who did not play favoritism or focus on the big “small businesses”. But please, please all of you (or most of you) do the right thing next time – please. We can do better.

The numbers don’t lie – we know what happened for the banking industry overall:

  1. Bigger, existing “small businesses” were served more because they are the ones you want to keep happy and not go under with bad debt. Punto. Period. Even if banks were not paid the fees they received by SBA (see below), who would they focus on? The ones with large loans that could go bad, with large investment accounts, sweep accounts, payroll services for hundreds of employees OR Joe Smith, the lobsterman (I’m in Maine.) with a $5,000-limit credit card he does not use and a checking account with an average balance of $200?
  2. You were paid handsomely for larger loans. We know you had the choice of being paid 5% on a $349,000 loan (fee of $17,450) and 5% on a $10,000 loan (fee of $500) – which loan did you do first? Please don’t cover it up or showcase your 1-2 $10,000 loans – you know what you did. Admit it now – do better next time.

I don’t understand why community lenders like us who are US Treasury certified and SBA microlenders are left out – not able to serve PPP loans. (News flash: PPP is just a type of PRI. PPP is not special or complicated or new. Nonprofits can take on PPP, i.e. a type of PRI, in our sleep with two arms tied behind our backs. Don’t know what a PRI is? A program-related investment, or PRI, is a “loan” that is forgiven if you hit certain donor/lender requirements or performance measures…sound familiar?) I’ll just assume lenders like us won’t be included and simply ask that for PPP or P3 or “Triple P” 2.0, we hope Congress, the SBA, and the US Treasury consider (and our banks and CUS ask for) the following:

  • carve out a significant portion only for the self employed in the new allocation. I did not run any numbers, but $50 billion of the $250 billion seems fair – 20% of the new allocation or 8.3% of the total (by the way – who chose $349 billion – was that one extra billion to go to $350B just too much?)
  • change/improve/increase the financial incentives to banks and credit unions to want to serve the self-employed and serve non-clients more (pssst – the banks aren’t really doing it for free…we just don’t see it)
  • improve on some of the PPP requirements that don’t work for non-service sole proprietors like fishermen and truckers with heavy fixed costs, e.g. not allowing those with Schedule C tax return losses to apply.
  • add time for self-employed and smaller financial institutions who truly serve the self-employed to apply and disburse the funds through July and August and truly help those FIs who serve self-employed to get set-up, find partnerships, etc.
  • assess and run the numbers on who “took care of their own”, i.e. served much bigger businesses who were long-standing clients, for P3 v.1 and those who truly focused on smaller loans/self-employed and new clients. For P3 v.2, reward those financial institutions who served the neediest more – pay them more, give them more allocation availability, and give them more liquidity.  Provide them technical support and match them up with tech companies who can make the process easier. Break P3 v.1 results down by bank, by bank/CU type and size, median loan size, by industry, by employee total, by race, by gender of the owner, by average employee salary, by organization type, and by geography – state and rural/urban, and, US Treasury and our friendly bank regulators, by census tract and average incomes by census tract….
  • reduce the overall friction to applying and accessing. Many things were done right by allowing businesses to attest to the truthfulness of the information, not requiring collateral, holding banks harmless for incorrect reporting, and allowing banks to make decisions quickly. But boy, was it complicated and confusing, especially for the self-employed. Now is not the time to get cute about trying to slip up the cheaters or those who misstate (though I guarantee you there are cheaters all around who took PPP loans – big, small, and tiny. They will get their due – we will find them out.)

Per the US Department of Labor, Maine is the second highest state with a high proportion of the self-employed (Montana is first). BDN has been sounding this alarm since early April here and here. Minorities and immigrants tend to be more self-employed. We at MaineStream work with low-income business owners (Yes! There are low-income business owners!) Whether you want to serve them or not, losing them to destitution and closure will hurt the overall Maine economy – this is a fact (Study: Maine has most vulnerable economy.) Do what is right – make it so – we can all do better. Give me a call or email me – I’d be happy to talk it through and on how to improve access regardless of the next “interim final” (my favorite term out of all of this) rule. We can do better – come on Mainers (who happen to be bankers/lenders).

Chris Linder, CEO, MaineStream Finance, Bangor, Maine

Originally published April 17, 2020

To find out more about Small Business issues during COVID-19, including financing, go here.

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