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California North Coast lenders expect less demand for latest pandemic-relief loans

SBA economic injury disaster loans

The SBA is still accepting applications for the COVID-19 economic injury disaster loan (EIDL) program through Dec. 31, 2021. These funds can be used to pay fixed debts, payroll and expenses, accounts payable and other bills that cannot be paid because of the disaster’s impact.

For more information, every eligible small business and non-profit is encouraged to visit www.sba.gov/coronavirusrelief about applying for EIDL and other economic recovery programs.

The general feeling among North Bay banks is that there will be fewer applications overall for the second draw of federal Paycheck Protection Program economic relief loans, the application period which opened this week. But they said some notable exceptions likely will be in the hospitality, hotel and restaurant sectors, which have been hard-hit by business restrictions over the past 11 months intended to slow the coronavirus pandemic.

On Monday, President Joe Biden announced additional changes to the second draw of the Paycheck Protection Program, opening a 14-day window allowing businesses and nonprofits of fewer than 20 employees to exclusively apply.

This two-week window opened on Wednesday and closes Tuesday, March 9, at 2 p.m. Pacific Time. (See details below on the new loans.)

Exchange Bank

Michael Sullivan
Michael Sullivan

Michael Sullivan, executive vice president and chief credit officer for Exchange Bank, said a majority of applications being seen today are first round borrowers coming back.

“We are also seeing a number of small dollar loan requests — some as low as $1,000 — from independent contractors, sole proprietors and small mom-and-pop businesses,” he said. “In the first round, some 76% of loan requests were under $150,000 and 48% were under $50,000.”

Sullivan estimated that some 1,000 applications could be submitted for the Second Draw, down from 1,800 in the first draw in 2020. Significant rule changes now apply that were not included in the first round.

The Santa Rosa-based bank has increased its use of social media and its website to reach out to these groups and increase participation. Minority and underserved business entities are among the high volume of small firms applying, Sullivan said.

“This is a virtual process with application forms obtained and submitted to us on line,” he said. “When borrowers send us their completed loan applications, a team of 20 experts reviews their documents, checks for errors or inconsistencies and sometimes asks for more information before sending them to the SBA.”

The bank is processing SBA applications in the order received, Sulivan said. Once lending officers review documents and the borrower signs the application, the SBA takes 24 to 48 hours to process applications and assign a loan number indicating that funding has been allocated. We then forward loan documents to the customer, usually within the same day. The receipt of funds can take a little longer.

Exchange Bank received hundreds of applications initially in round 1 and from 10 to 20 applications per day in round 2, Sullivan said.

Wells Fargo Bank

Wells Fargo Bank branch in Sunnyvalle  (AP Photo/Paul Sakuma, 2007)
Wells Fargo Bank branch in Sunnyvalle (AP Photo/Paul Sakuma, 2007)

Wells Fargo Vice President of Communications Ruben Pulido said 57,334 PPP-1 loans totaling $3.8 billion were processed by the bank in 2020 with an average loan size of $66,832 representing companies with a total of 447,643 jobs. About 86% of loans (49,536) were for less than $100,000.

The PPP-2 round this year within California has seen some 34,069 applications submitted to date requesting a total of nearly $2.2 billion in funds and representing 239,091 jobs. So far, 8,249 loans have been funded totaling roughly $399 million with an average loan size of $48,382.

The total number of 2021 PPP loans and their worth are difficult to predict.

“We have seen the weekly total SBA guarantee velocity decrease by $9.5 billion (25%) vs. the prior week,” Pulido said. “He said one critical thing we learned since previous PPP rounds is that underserved communities did not get the support needed citing lack of awareness about the program, feeling overwhelmed by the program’s complexity and uncertainty about how to access the program.”

Starting in mid-February, Wells Fargo is conducting a targeted e-mail outreach to nearly 380,000 of our small business customers located in low-to-moderate income census tracts, or majority-minority census tracts, to increase PPP-2 awareness, Pulido said. This gives the bank an opportunity to summarize key PPP-2 eligibility requirements, provide direct links to our PPP information site as well as other resources that may be relevant to small-business owners.

To expedite the loan process, Wells Fargo assembled a global team of thousands of fully-dedicated human resources, including the hiring and training of about 2,000 contractors from outside the company.

Last July, Wells Fargo created an Open for Business Fund using gross processing fees generated from the government to provide capital and expertise for businesses hardest hit by the pandemic, Pulido explained. This includes significant support for Community Development Financial Institutions (CDFI), including about $250 million of the total $400 million program being set aside for CDFIs. Some 32 CDFIs across the U.S. have already received funding through Wells Fargo’s Open for Business Fund as another way to funnel capital and technical expertise into neighboring businesses.

SBA economic injury disaster loans

The SBA is still accepting applications for the COVID-19 economic injury disaster loan (EIDL) program through Dec. 31, 2021. These funds can be used to pay fixed debts, payroll and expenses, accounts payable and other bills that cannot be paid because of the disaster’s impact.

For more information, every eligible small business and non-profit is encouraged to visit www.sba.gov/coronavirusrelief about applying for EIDL and other economic recovery programs.

Bank of Marin

Andrea Henderson
Andrea Henderson

Andrea Henderson, first vice president and director of marketing for Bank of Marin, said the institution funded over $316 million in PPP-1 loans to 1,824 small businesses, supporting the jobs of nearly 28,000 employees in the bank’s market areas.

As of Feb. 1, the bank received 745 applications for PPP-2 loans totaling $100.5 million. The largest funding categories include 572 loans (77%) for $150,000 or less, 102 loans (14%) for loans from $150,000 to $350,000 and 60 loans (8%) for loans between $350,000 and $1 million.

She also said the bank expects demand for PPP-2 loans to be lighter this year than in 2020. “However, we are prepared to assist any of our customers who would benefit from participating in this program. Since the launch of PPP-1, BOM has used secure web portals to streamline both the loan funding and forgiveness application processes.”

Some 73% of BOM’s PPP-1 loans (1,330) in 2020 were for $150,000 or less. Fifteen percent (282) were between $150,000 to $350,000, and 9% (164) were between $350,000 and $1 million.

Umpqua Bank

Umpqua Bank funded 17,000 businesses during the PPP-1 first round throughout its five-state operations in the Pacific Northwest totaling more than $2.1 billion in relief. As a result, some 250,000 jobs were saved, according to Kurt Heath, VP for corporate communications and public relations.

“Umpqua was one of the first banks in the U.S. to start processing PPP-1 loans on day one. California’s portion in 2020 included 3,500+ businesses who received $700 million in relief. An Umpqua team numbering nearly 600 employees across all of its branches worked round the clock processing PPP-1 loans.”

Heath said this was like processing 14 years of Umpqua’s historical demand for loans in a single month. “During the first round, this was an all-hands-on-deck manual effort that was later accelerated by advances in technology enabling us to process loan applications online.”

Napa-Sonoma Small Business Development Center

Mary Cervantes
Mary Cervantes

Napa Sonoma Small Business Development Center Director Mary Cervantes said this two-county organization worked with over 600 businesses seeking both PPP-1 and Economic Injury Disaster Loans (EIDL) in 2020. The majority of fund requests were under $50,000 and the next largest category was for amounts between $50,000 and $150,000.

“Businesses that received funds in round 1 will have an easier time in round 2 since the lender has all of their information,” Cervantes said. “While it is difficult to say how many will apply this year, we expect to see more restaurants, hotels and other industries applying who have been severely impacted by the limitations on in-person business.”

She said the rule is not to use both PPP and EIDL to cover the same costs. “PPP was designed to help keep employees on the payroll, EIDL funds are intended to cover other costs like utilities and rent. EIDL funds can be used as reserves or as a safety plan.”

While some key rules associated with second round PPP loans have changed, others have not. The 1% interest rate and five-year repayment terms remain the same. There are no lender or government fees and no collateral or personal warranty fees are assessed.

Loan forgiveness is possible for borrowers of both first and second round PPP loans if they used at least 60% of loan funds for eligible payroll costs over up to a 24-week “covered period”.

The revised federal Act includes favorable changes to loan forgiveness taxation and adds a short, one-page forgiveness application for loans up to $150,000. Forgiven PPP loans will not be taxable to small business borrowers and they will still be able to deduct payroll and other qualifying expenses for which PPP funds are used.

Other lending institutions have also reported PPP-1 results, and several have expressed a more conservative outlook as demand softens.

More details on the PPP second-draw loans

The president also outlined four policy steps that will be implemented by the first week of March addressing equitable access to the aid and how it will be spread across underserved areas of the country, the administration stated. Here are the steps:

  • Allow sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these applicants. At least $1 billion is being set aside for these businesses.
  • Eliminate an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bi-partisan congressional proposal.
  • Eliminate PPP access restrictions on small business owners who have struggled to make federal student loan payments by eliminating federal student loan debt deficiency and default as disqualifiers to participating in the PPP.
  • Ensure access for noncitizen small business owners who are lawful U.S. residents by clarifying that they may use an individual taxpayer identification number (ITIN) to apply for the PPP.

Administration officials said since the second draw of the PPP program began in January, about $134 billion in forgivable small business loans to about 1.8 million small businesses have been approved with an average loan size of about $74,000, according to ABC News. About 80% of those loans have gone to businesses with less than 10 employees.

Officials said the U.S. Small Business Administration would also revise its loan calculation formula to match Congress’ authorized approach in the Economic Aid Act for ranchers and small farmers.

Under PPP second-draw rules previously announced in early January, small business borrowers, and those who applied for SBA PPP loans last August, can apply for second round funding until March 31, 2021, due to an expansion of the program early this year.

On Jan. 6, the SBA and the Treasury Department authorized up to $284 billion for round 2 of PPP loans as part of the $900 billion COVID-19 relief package (called the Consolidated Appropriations Act of 2021) that became law on Dec. 27, 2020.

An additional $25 billion has been set aside for second-draw PPP loans to small businesses with not more than 10 employees, and small businesses located in distressed areas.

Second-draw PPP loans are limited to $2 million, down from $10 million last year, for small businesses with 300 or fewer employees, not 500 employees as in the 2020 PPP program. However, first time applicants are still eligible for loans up to $10 million.

A “means test” is now required. Loans are restricted to small businesses that can demonstrate a loss of 25% of gross receipts in 2020 compared to 2019, or a 25% loss of revenue in any quarter during 2020 when compared to the same quarter in 2019.

Small businesses that previously received a first-round PPP loan may be eligible for a second-draw loan if the business has used the full amount of its first-round funds, or plans to do so, on eligible expenses. Several new expense categories have been added beyond rents, leases, mortgage interest, utilities and debt.

The list now includes more qualifying expenses, such as those associated with outdoor dining, supplier costs, software, cloud computing and other human resources and accounting needs, as well as property damage costs caused by public disturbances that occurred during 2020 that are not covered by insurance. Deferred payment plans are also available.

These rules revise the qualification based on small businesses having fewer than 500 employees in round one to having fewer than 300 employees for the Second Draw. In the case of restaurant or hospitality businesses with NAICS code 72 with more than one location, the limit is 300 employees per location.

SBA Senior Adviser Michael Roth said concerted efforts are being made to reach rural and small businesses as well as Community Development Financial Institutions (CDFI), minority depository institutions and minority underserved enterprises in 2021. He noted that 82% of all loans have gone to businesses requesting less than $100,000. Some 28% of businesses who have requested funding in this round are in rural communities.

The SBA news release stated that steps are being taken to resolve data mismatches and eligibility concerns and is also allowing lenders to upload supporting documentation regarding validation errors during the forgiveness process. Some of these issues involve mismatched tax identification numbers and loan number inconsistencies on submitted forms. Lenders now are certifying all attestations borrowers are making in their documents.

The SBA says eligible small businesses that were not able to receive a PPP loan in the first funding round before the program expired Aug. 8, 2020 will now have an opportunity to apply for a PPP loan.

In addition, a borrower that returned all of his or her PPP loan proceeds may reapply for a new loan for an amount it is eligible for under current rules. If a borrower returned part of a PPP loan or did not accept the full amount of the loan proceeds it was previously approved for, the borrower may apply for an increase to its existing loan for the difference between the amount retained and the amounts previously approved.

The maximum loan amount for a second draw PPP loan is equal to the lesser of 2.5 multiplied by the borrower's average monthly payroll costs or $2 million, or 3.5 times average monthly payroll for restaurants and hospitality businesses with North American Industry Classification System (NAICS) code 72, (the accommodation and food service sector).

When making this calculation, a borrower many use the average monthly payroll from either calendar year 2019 or 2020. The regulations also provide that businesses that are part of a single corporate group may not receive more than $4 million of second draw PPP loans in the aggregate, according to a report by the law firm of Foley Hoag LLP.

Correction, Feb. 26, 2021: Exchange Bank processed 1,800 PPP loans in the first round.

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