Banks scramble to keep up with NH businesses’ emergency loan needs

‘Demand has been crazy’ for ‘lifesaver’ federal assistance

Tom Boucher, an owner and CEO of Great NH Restaurants, will never forget the exact time – 9:44 a.m. — when he heard about Governor Sununu’s March 16 order closing all restaurants, resulting in him having to lay off 600 hourly employees.

Yes, the company switched to takeout, but he still has seen a 90% drop-off in revenue at his T-Bones, CJ’s Western Grill and The Copper Door restaurants.

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Joe Bator, executive vice president at Primary Bank, said employees there were ‘working around the clock’ to process PPP loans.

Then, on Friday, April 3, the first day he could do so, he filed for eight separate forgivable loans through the Payroll Protection Program. By the end of the weekend, they were approved. On Tuesday, he was able to start hiring hundreds of his full-time workers back, as the chain added more labor-intensive curbside pickup, as well as others services, so he will hopefully be able to make it through this crisis.

“This was a lifesaver,” he said. “This is going to save my business.”

The mad rush is on, as businesses spent the last week filing for some of the $349 billion worth of federally guaranteed loans, loans that – for the most part – they won’t have to pay back. Those funds, however, are finite and going fast.

By Tuesday, President Trump announced that $70 billion – one fifth – was gone.

“It’s anyone’s guess how quickly it is going to go,” warned Rachael Roderick, acting director of the U.S. Small Business Administration’s New Hampshire District Office in Concord, during a webinar sponsored by the Business and Industry Association of New Hampshire. “Just try to get your application in as soon as you can.”

“The run on this has just been incredible,” said Steve Lawlor, a CPA and principal at Nathan Wechsler & Company echoed at the same webinar.

At this rate – and there is anecdotal evidence that it’s slowing down – that pot of gold is unlikely to last more than a few weeks, though the Treasury Department is considering asking Congress for another $250 billion more.

‘Demand has been crazy’

Needless to say, SBA-approved lenders – the only banks that can lend the money – are swamped, meaning that those that don’t have a relationship with one might not get their loan in on time.

“We’ve been working around the clock through the weekend,” said Joe Bator, executive vice president at Primary Bank, the bank that granted Great NH Restaurants its loan. “The demand has been crazy, to be honest.”

Within 12 hours on Friday, April 3, Primary Bank approved 40 loans totaling $17 million. On Saturday, it was up to 74 loans for a total of $26.3 million. And when Bator talked to NH Business Review on April 7, he was starting to lose count.

“Over a hundred,” was all he could say.

To put that in perspective, Primary Bank, had made 39 SBA loans since the start of Oct. 1, the federal fiscal year.

Primary is better at keeping up with and disclosing how much it is lending than any other bank. Indeed, at deadline, even the New Hampshire SBA office could not provide any numbers on how many loans it had approved and for how much, much less who was getting them, though previously the recipients of SBA lending had been public record, since taxpayer money is at risk. (To be fair, the SBA, already woefully understaffed for this kind of a program. In the last fiscal year its 7a program for the entire country amounted to $21 billion for the whole entire year. The PPP program, rolled out in a matter of days, is 16 times the size.)

In this case, taxpayer money is more than at risk, since the federal government doesn’t expect most of it to be repaid.

Here is how it works.

The business can “borrow” two and a half times its average monthly payroll (which includes benefits but limited to a salary of no more than $100,000) up to $10 million for two years at a 1% interest rate, with no payments due for the first six months. But most or all of that will be forgiven as long at least three-quarters of the money goes to pay an equivalent workforce (in terms of headcount, pay rate, hours and benefits) for eight weeks. If some of the workforce is cut, then the forgiveness amount will suffer the same fate proportionately.

The other quarter of the loan can also be forgiven if spent on necessary expenses like rent, mortgage or loan payments.

But first you have to find a bank, and it better be a bank you have an account with, or you will be pushed to the back of the line.

Boucher couldn’t say enough about Primary. Others in the industry went with larger institutions, some of which declined to participate.

Frustrations

The size of a loan won’t always coincide with the amount forgiven.

Take Yankee Publishing Inc., the Dublin-based parent company of NH Business Review, as well as Yankee magazine, The Old Farmer’s Almanac, New Hampshire Magazine and Parenting NH. Despite an expected decline in revenue, it is still paying its employees to work remotely. So it applied for $1.25 million based on its payroll size. That part will be forgiven. But the company doesn’t anticipate needing the rest for other expenses, so it will probably have to return between $100,000 to $200,000.

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Janette Desmond, owner of Kilwins, a candy shop in Portsmouth, was frustrated by the PPP process as she geared up for Easter. (Rick Beauchesne/Seacoast Online)

Still, “this is essentially a grant program in the form of a loan,” said YPI CEO Jamie Trowbridge. “There is no pain involved here in having to pay some of it back”

But Kilwins, a sweets shop in downtown in Portsmouth, primarily hires part-time employees who can’t work at home. Thanks to the extra $600 a week supplied by the federal government, those workers could make more collecting unemployment than going back to work with the risk that they could contract the virus. Thus it’s unlikely that the company will be forgiven for much of the 75%-of-payroll requirement of the $40,000 loan, just the $10,000 which would pay rent for a month.

“It works for someone with hundreds of employees, but for me – not so good,” said Kilwins’ owner Janette Desmond.

That’s not Desmond’s only frustration. She had to do her application over again, since her bank ended up switching its third-party vendor. But she is determined to apply again, as well as seek help from an emergency loan program from the SBA that offers a $10,000 grant.

“Ever since this whole thing broke, I’ve been running this thing by the seat of my pants to get though to at least Easter for my customers, and somehow we’ll come out of this the other end.”

Sole proprietors

The PPP isn’t the only federal program in the wake of the coronavirus pandemic that benefits small business, but it is by far the largest, and it extends to all organizations with under 500 employees. (The law does carve out restaurants chains and other independent franchises, so they can file by their individual locations. There are other exceptions as well for larger companies that don’t make that much money or are non-profits.)

That even includes sole proprietors whose “payroll” consists of their owner’s draw, like Swift Corwin, the owner of Corwin and Calhoun Forestry, a consulting company in Peterborough.

Corwin is dependent on the “winds of the economy,” which are not blowing his way these days. Yes, he said toilet paper is made out of wood, but so are houses, and construction has taken a hit and the market is “soft” and he expects it to get softer. But Corwin doesn’t want to collect unemployment – a new option suddenly for the self-employed – even though the enhanced benefits might result in a larger income than he gets for his business.

“I want to be able to work,” he said. “I’m not dead in the water, just partially dead in the water.”

Corwin is applying through his bank, TD Bank, which over the weekend set up a portal allowing him to apply totally online. He has run into technical glitches, but has since been able to upload all of the required documents though had not pressed send yet when interviewed on Wednesday. There was no rush for him. The banks can’t submit loans for sole proprietors until Friday, April 10.

“If being at the end of the line means sole proprietors won’t get the benefits, that would certainly hurt a lot of us,” said Corwin. “But I can understand that bigger organizations with more employees be allowed to apply first.”

Since Corwin has an account with TD Bank, the money will be directly deposited into his account. Those who don’t have an account have additional hoops to jump though.

“We are not trying to exclude anyone, we are just trying to take care of our customers” explained Sheryl McQuade, vice president of the TD Bank’s Northern New England region, in another BIA webinar.

“There are no fees, so if this makes sense for your business. I don’t see a downside,” she added.

Actually, there are fees, they are just paid by the SBA, meaning there isn’t much of a downside to the bank as well.

According to the SBA documents, banks will get 5% of loans under $350,000, 3% percent of loans between $350,000 and $2 million and 1% percent of loans over $2 million.

The interest on the loans may be small, even with a full SBA guarantee, but they only have to carry it for seven weeks, after which the SBA will purchase the expected forgiveness on the loan.

Other challenges

TD Bank is the largest SBA lender in New Hampshire, with 116 7a loans to date, and it has more than $300 billion of assets. Primary Bank which was founded in 2015, has about a 20th of that amount.

Will Primary be able to handle the cash crunch?

When asked if the bank had enough cash on hand to keep lending at this pace, Bator said it is a bit of a “moving target,” but “at the present time we have sufficient cash to handle them and are working with all our local government partners to ensure that we continue to meet the need.”

Bator was referring to two efforts.

On April 3, Gov. Chris Sununu announced that the state planned to park more (about $50 millions more) of its state cash in local banks, so that they would be able to make more loans in the community. And on April 5, the Federal Reserve said it is planning to help banks sell the PPP loans on the secondary market, infusing them with more cash.

Generally, however, the 16 state-charted banks are in good shape, said Banking Commissioner Jerry Little, who has been closely monitoring them through he crisis.

“All the banks are well-capitalized and are handling the current surge in activity quite well,” said Little.

Still, the loan program is not the only one challenge that banks are facing, Little pointed out. The sudden drop in interest rates has led to a rush to refinance. Then, once the crisis hit many property owners – taking advantage of Sununu’s March 16 order halting foreclosures – they have begun putting off making payments or are asking for forbearance. And, of course, there are businesses seeking a regular loan to tide them over, without going through the SBA.

Meanwhile, many banks have closed their lobbies and are handling this unprecedented volume though their website with email or telephone follow-up, or even drive-though windows

While larger banks, like TD, tend to run their program out of a web portal, regional and smaller banks tend to handle things one by one.

People’s United Bank managed to get though 5,000 loans in New England (the bank didn’t have a breakdown for New Hampshire) and processed nearly all of them over the weekend.

“We are processing manually every individual loan,” said Dianne Mercier, president of People’s New Hampshire operations. “We are putting a lot of pressure on our bankers to take pressure off our customers.

Bank of New Hampshire said it is receiving hundreds of loans applications, has processed about half of them, and received SBA approvals.

“We know our customers pretty well. Frankly they like talking to us and walk them through it to make sure you have it done right,” said CEO Paul Falvey.

And Woodsville Guaranty Savings, which had only processed 10 SBA 7a loans to date, said about 150 PPP loans come in over the weekend.

“One of the big issues is that our customers and some of the members of the community were not being serviced by larger banks, so we can be of help,” said CEO James Graham.

Some of those larger banks were waiting for guidance from the SBA.

“There were some contradictions in [SBA], information but we chose what direction we were going in,” said Graham.

But he was quick not to blame the SBA, which he said has the “Herculean task” to get out so much money so quickly.

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