It took just 13 days for the Paycheck Protection Program — which provides grants and loans from the federal government’s Small Business Administration to small businesses with fewer than 500 employees — to run out of money. And the U.S. Senate adjourned earlier this week without approving additional dollars for the program, meaning that it won’t be until next week at the earliest that the PPP receives additional funds.
That’s a setback for small businesses still seeking financial help from the government. It’s also a setback for the Midwest banks that have been processing applications for these loans on behalf of their clients. But there is hope among one bank that has been particularly busy that the PPP will receive new funds soon and that small business owners will begin to see relief again.
Bridgewater Bancshares based in Bloomington, Minnesota, has been particularly busy with the PPP. According to information provided by the bank, Bridgewater has successfully processed more than 594 SBA-approved applications for loans under the program. If closed, these loans will total $152.6 million to help businesses in the Twin Cities area that are struggling to survive during the COVID-19 pandemic.
Nick Place, chief lending officer for Bridgewater Bancshares, said that he is optimistic that Congress will make additional funding available for the program. He also recommended that businesses in the Minneapolis/St. Paul area continue to submit PPP inquiries on its website in anticipation of the day when more funding is available.
Bridgewater Bank began accepting PPP applications on April 3. As of noon on April 16, the bank had received more than 1,250 loan inquiries, of which the SBA had approved 594 applications.
One recipient of a PPP loan was Sam Navab, owner of St. Louis Park, Minnesota-based Navab Brothers, a merchant that sells Persian and other high-end rugs.
“I’m in touch with colleagues in our industry from all corners of the United States, and we are the only ones I know who have received this loan in record time,” Navab said in a written statement.
Place said that he isn’t surprised by the demand for the program. He said that Bridgewater Bank began preparing for this demand early. The bank adjusted its staffing needs, too, as applications came pouring in.
Place said that Bridgewater started with five loan officers to handle PPP requests. As of earlier this week, the bank had upped that number to 14. The bank’s analyst group started with six people helping with underwriting and approval. As of earlier this week, that number had jumped to 21.
Bridgewater’s staff, though, hasn’t had to do much to underwrite these loans. Most of that work is being done by the SBA. The bank’s job instead has been to help business owners understand how the program works and what steps they need to take to apply for a loan.
“A lot of the work we are doing is helping clients understand how the program works, how to calculate the amount of loan dollars they are eligible for, what supporting documents they need,” Place said. “Then we have to help them understand what they can use those loan proceeds for.”
As Place says, loan recipients must spend 75 percent of their loan dollars on payroll during the eight weeks following the funding of the loan. If they don’t do that, a portion of the loan might not be forgiven.
“We want to make sure our clients understand that and that they aren’t going into this thing thinking that they are getting a $50,000 loan that will be entirely forgiven and they can use it to pay their rent,” Place said. “You can use some of the loan dollars to pay rent. But if you are not using 75 percent on payroll, you will have to pay some of that loan back.”
Though the PPP has run out of money for now, Place said he has been pleased with how quickly the SBA has reviewed applications. He said that SBA approvals had been coming in quickly, in some cases almost instantaneously.
“This has been a pleasant surprise,” Place said. “They are not delaying the approval side of this. They are getting the loans to clients quickly.”
Place said Bridgewater is also helping clients with another big question: How many people do they have to rehire after getting their loan dollars?
Say you’re a small business owner operating a coffee shop. You apply for a PPP loan. Before you applied for the loan you had 10 employees. Thanks to the COVID-19 pandemic, you now have just one worker. If you get your PPP loan, you might have to rehire all your previous employees to meet the 75 percent payroll threshold.
If your former employees were successful in applying for the enhanced unemployment benefits that the government is now offering, an extra $600 every week, some might not want to return to your coffee shop. They might make more money by receiving that extra $600 a week for the next four months. This means that you might struggle to hire enough employees to meet the 75 percent payroll requirement.
“If they can’t rehire enough people, business owners need to be mindful of how they use their loan,” Place said.
If that same coffee shop owner gets a $50,000 PPP loan, for example, the owner might spend the money on rent, utilities or interest on bank loans if that owner can’t spend the required 75 percent on payroll. That might mean that only $20,000 of the loan is eventually forgiven. Place recommends that business owners in such a situation save the additional money – in this case, $30,000 – and use that money to pay back the now-unforgivable portion of the loan. This owner would then still be able to use the other $20,000 to pay for rent and other expenses.
Place said that the business owners Bridgewater has worked with span the entire gamut, everything from 1099 independent contractors to restaurants and beauty salons, from small one-person shops to businesses employing hundreds of workers.
Bridgewater is accepting PPP applications from business owners who have an existing relationship with the bank, of course. But Bridgewater is working, too, with business owners who have never worked with the bank before.
“We are happy to work with everyone,” Place said.
Bridgewater is doing its due diligence work at the start of the process, vetting business owners whom they haven’t worked with in the past.
But from an underwriting perspective? The SBA’s goal is to provide a financial lifeline to as many businesses as possible.
“A company could have lost $2 million a year for the last three years and they can still get one of these loans,” Place said. “It is a non-secured, non-recourse loan to the business, backed 100 percent by the SBA. We haven’t seen any parameters where that loan wouldn’t get approved.”