Credit unions are starting to apply for Payroll Protection Program (P3) funding after a bumpy takeoff on April 3.
Taylor C. Nelms, senior research director at the Filene Research Institute, the nonprofit think tank for credit unions in Madison, Wisconsin, said credit unions were receiving a massive demand for forgivable loans in a context of confusion regarding the application process.
“Apart from a few institutions, credit unions are not cumbersome in small businesses, so experience and expertise may not be present in all organizations – although the need exists on the member side,” he said. he declared.
PPP is designed to help businesses cover salaries and other expenses during the coronavirus pandemic. Loans can be canceled in whole or in part, depending on how the money is spent and the number of workers the company is holding back.
Businesses, independent contractors and sole proprietors apply through banks or credit unions approved by the Small Business Administration.
The Security Service Federal Credit Union of San Antonio ($ 9.9 billion in assets, 788,628 members) had 600 members inquiring about the program when it launched on April 3, and has received 50 inquiries a day since .
“Unlike any other program we’ve ever put in place, everyone wants to apply now,” said JT Cody, executive vice president and general counsel for the security service.
“Even at the best of times, managing a wave of demand like the one we are experiencing would be exceptionally difficult,” he said. “Add to the equation downsizing, remote work, and limited and last-minute program information, bottlenecks will be the norm for the course. “
The PPP loans are not the only help credit unions or the government can offer, but they are the greatest potential source of relief for small businesses.
Businesses can apply for loans up to 2.5 times their average monthly payroll of up to $ 10 million. Amounts spent within eight weeks of origin on payroll, rent, utilities, and loan interest payments will be waived.
The amount of the loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of more than 25% in wages paid to employees. The remainder will be converted into a government guaranteed loan with an interest rate of around 4% with terms of up to 10 years.
Due to the need to deploy the program quickly, Security Service relied on familiar tools already at its disposal when accepting applications via secure email.
“The process is much heavier than we prefer, but we are taking steps to become more efficient as we learn from our early experiences,” Cody said.
The biggest challenge for the security department is educating members on the requirements of the application. They often arrive incomplete or without the required documents.
Loan financing was pretty easy. Usually, the credit union simply deposits the proceeds into the member’s credit union account.
Meanwhile, the SBA continues to roll out details about the program.
“In a perfect world, we would have all the details and months of lead time to support the program,” Cody said. “Right now, the world is far from perfect, so it can be chaotic at times, which is understandable. “
The loans are 100% guaranteed by the federal government, and credit unions are allowed to charge an application fee, which the SBA pays.
However, Nelms at Filene said maintenance costs are high. Credit unions still have to control new business members, however small. “And they are operating in tatters, responding to a rapidly evolving crisis situation across the organization with limited resources for a single initiative.”
Another challenge for credit unions is to identify members who could benefit from them. Many of them are independent contractors who use the regular retail services of the credit union. Others may be retail members who run a sole proprietorship from a Venmo or Cash app account.
Nelms said the PPP is politically well designed, recognizing the need to keep small businesses afloat during the crisis with grant-type loans with inclusive qualifications.
“What is happening is not a typical downturn in the business cycle – more an economic hibernation,” he said. “We know that small businesses – and just as importantly, sole proprietorships, independent and self-employed workers / contractors – operate with very slim margins, and we know they have a huge role to play in employment in everything. the country.”
However, Nelms said his biggest concern is that this first-come, first-served model will leave out those who need it most.
“That’s exactly what we hear from the banking side of things, that they prefer to work with existing clients,” Nelms said. “It would not surprise me at all to see minority women, freelancers / concert workers and other vulnerable entrepreneurs / small businesses disproportionately excluded from support.”
Nelms said the situation offers credit unions an opportunity to leverage their local connections and “make a difference in their communities.”