By Sougata Mukherjee and Steve Watkins – Cincinnati Business Courier
Cincinnati banks, like those across the country, have been inundated by applications from small businesses seeking money through the U.S. Small Business Administration‘s new Paycheck Protection Program.
But for companies rushing for cash, there are several things small-business owners need to be mindful of, bankers said.
Banks have been scrambling to handle the flood of applications since the program launched Friday. Fifth Third Bank (Nasdaq: FITB), Cincinnati’s largest local bank and the nation’s ninth-largest U.S.-based consumer bank, had received 22,000 applications as of midday Tuesday, CEO Greg Carmichael told me.
Smaller banks are getting overrun, too. LCNB National Bank had to temporarily suspend taking new applications early this week, CEO Eric Meilstrup told me. The $1.6 billion lender had received more than 500 applications.
“We would have had many more, and we didn’t want customers to be part of the backlog if they had another option,” Meilstrup said. “We have a huge desire to reopen that, and we’ll look at it early next week. We obviously don’t want to not take care of somebody. But we’re focusing right now on taking care of the customers who have applied.”
Milford-based CenterBank, a big SBA lender that has just $250 million in assets and three offices, has processed 150 PPP applications totaling $30 million, president Stewart Greenlee told me. That’s small compared with the big banks, but it’s still rising and nearing 15% of the bank’s total assets.
“We studied this ahead of time and had a dedicated group that worked over the weekend to handle this,” Greenlee said. “We wanted to make sure we could relieve anxiety for our customers as fast as we could.”
The program enables small businesses of 500 employees or less to borrow up to 2 1/2 times their average monthly payroll. They can apply 25% of that to other costs such as mortgage, rent and utility bills to keep the business open. Loans of up to $10 million are available. The key for many companies: the loans are forgivable for the amount used for payroll, rent or mortgage, utilities and other qualifying expenses over the eight weeks after they receive the money. They have to keep all their employees on staff to get the loan forgiven. Otherwise, the loans charge a low 1% interest rate.
“It’s a Herculean task,” First Financial Bank CEO Archie Brown told me. “The Treasury Department and the SBA created legislation and rules and rolled it out to banks all in the last week.”
Business owners can take steps to smooth the process that’s encountering logjams at the SBA even when things are done right. Make a mistake and your application can get slowed even more.
- Do not apply at several banks: One borrower can only apply with one lender. “If someone came to us and said they already applied at another bank, we just ask them to be patient with that bank,” Greenlee said.
- Don’t turn in incomplete submissions: They will delay processing your loan. While lenders are going in with customized processes, several banks have already set up a system that kicks back the application to a banker when the form is incomplete. KeyBank has developed a list of documents and information small-business owners need when applying. You can learn more here.
- Do get updates. Visit the U.S. Treasury website, linked here, and SBA’s web pages often for updates. Greenlee says that will give business owners the most current information on any changes in the program.
- Do be patient: “I understand if I’m a customer I just want a response,” Meilstrup said. “We’re working on that piece of it. I totally understand it’s hard to be patient when they’re worried. We’re telling our customers we’re working extremely hard to take care of you. Don’t take the absence of a response as meaning we’re ignoring you.”
- You cannot use IRS 1099 workers as your employees: While this may not be an issue in the front-end when applying for the loan and calculating the relief amount, it may become an issue when small businesses are asking for the loan forgiveness down the road. Double-check your payroll calculation and total number of employees. On April 10, the SBA will allow independent contractors and self-employed individuals to apply for the loan relief program. Typically, those entities file their taxes using 1099 forms.
- Do not start new entities and apply for loan: The PPP program allows businesses to separately apply for a loan for every business where a person/persons may have a beneficial ownership. But all entities under one beneficial ownership must have been an active business by Feb. 15.
- Sum of your holdings cannot go past 500 employees: This provision is complicated. Hotels and restaurant chains are exempt from this rule, and late last week the SBA added franchise owners who employ more than 500 people to that exemption list as well. The only caveat: No single outlet could employ more than 500 people. For every other business, the 500-worker maximum number is in play.
- Don’t miscalculate: Complete your own calculation ahead of time to make sure you borrow as much as you qualify for the PPP relief. Remember that in the event some of your loan is not forgiven in the final calculation, it will end up being a 1 percent loan for a few years — still not a bad deal.