Arkansas bankers who fronted money to thousands of businesses participating in the Payment Protection Program now say they are frustrated by the federal government's failure to repay the forgivable loans in a timely manner.
“We had to inject extra capital into our bank to be able to cover those loans because that's $23 million worth of loans on our books that we didn't have the capital for,” Randy Scott, president and CEO of Farmers Bank & Trust in Blytheville, told Arkansas Business. “And we thought, within 12 to 16 weeks, we would get our money back. And here it's going to go into 2021, and we're still going to be sitting on these loans.”
The U.S. Small Business Administration had received 96,000 forgiveness applications as of Thursday, but hadn’t taken action on any of them, according to a Sept. 27 Politico report. It started accepting applications from lenders on Aug. 10 and has 90 days to take action once an application is received.
Companies and nonprofits in Arkansas received a combined $3.3 billion in PPP loans, which were designed to soften job losses from the coronavirus.
“All the banks across the country, I mean, we all went on the front line and we went out and did what we were supposed to do — kind of did our patriotic duty — to help keep the economy going … The banks are the ones sitting holding the bag here for an extra six months or so,” said Scott, who is also vice chairman of the Arkansas Bankers Association.
So banks are standing by, not knowing when they’ll be off the hook. Banks lent their own money to their small business customers — charging an interest rate of just 1% and deferring payments for a time — believing the federal government would quickly pay them back for the majority of the loans.
The SBA declined to comment to Politico for its story, but the Arkansas District Office of the SBA said Friday that it doesn’t accept or process these applications.
Instead, "SBA has set up a centralized processing system through which all financial institutions can submit their borrowers’ PPP forgiveness applications," Arkansas SBA Director Edward Haddock said in an email. He also said the SBA had begun processing applications.
Mark Wilson, head of small business lending for Simmons Bank of Pine Bluff, said the biggest problem with the PPP is just the "ever-changing, ever-evolving aspect of it."
"We were hoping that this would be a much shorter process, and it looks like it's going to evolve, and we're going to be dealing with PPP loans for much longer than banks had ever really wanted to,” he said.
Matt Reddin, Simmons' chief banking officer, said the bank should have been through the forgiveness process by now and it may have to once again defer payments for customers because of the delay.
In addition, ABA President and CEO Lorrie Trogden said by email, “The main question is when will the SBA be ready to start forgiving PPP loans. At a virtual meeting with the SBA and Treasury last week, they indicated guidance will be coming soon, but gave no specific timeline. … Much like every phase of the PPP process, banks don’t have all of the information needed.”
If this sounds familiar, it’s because banks waited to make PPP loans when the program was first established because they didn’t have guidance from the SBA early on.
Also causing the holdup is that Congress is considering legislation that would forgive all PPP loans of less than $150,000. The ABA is advocating for its passage, Trogden said.
Scott said the SBA has indicated it’s waiting on Congress to act. “And it doesn't look like that's going to happen before the election. So we're still sitting here, waiting,” he said, adding that the U.S. banking community is pressuring the agency to not wait on Congressional action to do what it’s already been authorized to do.
Wilson said, “We're all crossing our fingers” that the legislation on loans of $150,000 or less will be approved, but he grows less optimistic by the day.
Asked how this pending legislation is affecting what the SBA is able to do now, Haddock said, "Our office is working daily to ensure we are executing on every assistance program we have available to us now and are ready to move forward with any changes that may occur."
It’s not just banks that are concerned. Scott said his customers are “getting antsy” because, according to the loan documents they signed, they have to start making payments within six months, which for many is this month. He added that a lot of his customers have the PPP money but haven’t spent it yet because they’re unsure of whether they’ll have to pay it back.
According to Scott, PPP loan recipients were supposed to be able to start applying for forgiveness within 12 weeks. He thought the SBA would start accepting the forgiveness applications around July 1.
The agency didn’t roll out a way to submit them until Aug. 8. Originally, small businesses could apply for the loans through June 30, but that application deadline was extended to Aug. 8.
Banks can now submit the forgiveness applications online.
"We are still fairly early in the PPP forgiveness process," Haddock said. "Small businesses and nonprofits that have received PPP loans have 10 months from when the funds were exhausted (eight or 24 weeks) to submit their PPP forgiveness applications to their financial institutions. The financial institutions then have 60 days to review those applications and issue a decision to the SBA."
He also said the SBA’s 90-day deadline also applies to it issuing payments, with interest, to the banks with approved applications.
Farmers Bank has already received 256 forgiveness applications, and it has submitted 149 of them to the SBA. Banks have 60 days to submit their customers’ applications, then the SBA has 90 days to take action on them. It’s already been nearly 60 days in some cases, Scott said.
And all Farmers has heard is the agency will begin processing the applications soon.
“We don't know if we're filing them out correctly. We don't know if they're going to reject everyone and ask for more information. We don’t know what they're going to do,” Scott said.
Meanwhile, Simmons Bank hasn’t submitted any applications yet. It’s received five so far but has been testing an automated way for customers to submit them to the bank. Wilson said Simmons’ plan is to submit the first application to the SBA in the next few days, and he expects the SBA to start forgiving loans and releasing funds in the next few weeks.
Scott is less optimistic. He would like to get the loans off his bank’s books by Dec. 31.
“2020 is a terrible year for many, many reasons,” he said. “Financially, it's a terrible year … To start 2021 fresh is my goal. That might be a little optimistic with the way things are looking, but it's very feasible. I mean they've got time to forgive these loans and get us our money this year.”
But Scott added that the SBA’s Arkansas District Office has been communicative and is “just as frustrated as” the banks are because it’s not hearing anything from Washington.
“I do feel for the SBA because that was a monumental task to put on to them. … I don't have hard feelings,” he said. “It's just a little frustrating.”
Haddock called the COVID-19 pandemic an unprecedented situation and said the SBA’s response to help small businesses "is also unprecedented." He said that, since the start of the program, the SBA has "delivered more than 14 years’ worth of its traditional lending guaranty volume in just a few months."
"Small businesses needed relief fast, and we met that mission," he said. "SBA is continuing to work diligently to reconcile and support the process moving forward.”
Haddock said the Arkansas SBA office had hired two more people to deal with its coronavirus-related workload, and it has partners that can help small businesses with COVID-19 issues that include the forgiveness applications. Here’s that list of partners.
He said the Arkansas SBA office has been providing updates to the state’s banks and the ABA and the Arkansas Community Bankers Association, as well as through an enewsletter and weekly webinars.
The Simmons officials said, despite issues with the PPP, the program has been successful and their bank is glad it participated in the program. Reddin said the worst-case scenario is the loans will be on the bank’s books for two years and that will hurt its income, but not create a “dire” financial situation for Simmons.