Small N.O. Banks Competing with Big Guys to Get PPP Loan Applications In

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NEW ORLEANS – Yesterday, when the SBA reopened the application process for Paycheck Protection Program loans, “batch uploads” from big banks were the likely reason the SBA’s computer system was overloaded and difficult to use. The problems continued today.

When the first round of the program began on April 3, many big banks didn’t have systems in place to start the process. They lagged behind the community banks who were able to submit thousands of loans for their customers. When the program ran out of funds 13 days later and temporarily shut down, that left the big banks with huge backlogs of applications.

Yesterday, for round two, the SBA introduced a system to allow for “batch uploads” of 5,000 applications at a time, and local bankers theorize that this could be the reason the SBA’s “E-Tran” system was only available to them sporadically.

“We got off to a pretty rocky start,” said Chris Ferris, Fidelity Bank’s president and CEO. “We are normally capable of getting approved anywhere from 250 to 300 PPP loans a day. Yesterday, during the day, we only did nine applications and not because we weren’t trying, but because the system was down.”

Before the PPP program ran out of money, Fidelity had processed 897 applications worth about $138 million. Yesterday it began work on a backlog of about 600 additional applications. Ferris’ team worked until late last night to catch up and by this morning had made a lot of progress. 

Home Bank, meanwhile, found success yesterday by employing software of its own design.

“We had a lot of problems but we wound up being extremely effective,” said John Zollinger, the bank’s New Orleans market president. “We started the day with 1350 applications in the backlog and we woke up this morning to only having 50 applications not processed. Our story seems to be a lot different from our compatriots. I attribute it to having a team of people who worked all night in conjunction with an interface we developed.”

Home Bank contracted with a software developer to create a tool that would instantly fill all three pages of the PPP form with data. This prevented people from kicked off the system halfway through an application and having to start the process over.

“It was part brains and part brawn,” he said. “We tried to figure out how to best work within the system but also just used brute force. We had 30 people who were all coordinating their clicks.” Before the PPP ran out of money the first time around, Home Bank had closed 969 individual loans for $158 million.

Ferris from Fidelity said that over the weekend he realized the application process this week was going to be a challenge.

“Sunday afternoon we got a message from the SBA indicating that they’re going to allow for bulk submission of PPP loans, which sounded great until I got to the next sentence, which said that a minimum of 15,000 applications can be submitted in bulk,” said Ferris. “So I quickly emailed the SBA and said, ‘I have 600 that are ready to be approved. They’re all been underwritten and we’ve done our job on it. Can I submit them?’”

The answer was no.

“So at that point I knew that Monday was probably going to be bad because you’re now going to have these bulk files,” said Zollinger. “They aren’t coming in compressed; they’re coming in all at once.”

The SBA decided at the last minute to drop the threshold from 15,000 to 5,000 but that’s still much higher than most community banks would need. 

“It was clearly meant to help the larger institutions who had the pent-up demand because they weren’t quite ready to go when round one rolled out back on April 3,” said Ferris. 

Home Bank and Fidelity both plan to finish processing their existing applications and will take new customers for as long as the program has funds to deliver. They both noted that the average loan amount is smaller this time around because a lot of the new applicants are sole proprietors and contractors vs. bigger companies with employees on the payroll.

As everyone looks ahead and tries to guess what a fourth round of federal aid might look like, most people agree on the problems with the current system. There are two that stand out:  The eight-week window to use the loan funds beginning when they are received doesn’t make sense for businesses who can’t operate right now because of social distancing rules. And it’s hard to bring employees back when they’re making more money through the state’s unemployment system.

“I think it would have been more effective to set the timing where unemployment and PPP worked together – especially for the companies that are mandated to be closed,” said Zollinger. “Allow people to draw unemployment until a certain period of time but be strict when their jobs reopen and their companies can pay them. … And on the PPP side, allow the companies to spend the money in the eight weeks of their choosing not beyond a certain date.”

Ferris said he read an idea from Mark Cuban that he thought made sense.

“He was asked how he would have done it and he suggested providing what essentially is a line of credit to businesses,” he said. “That would allow them to use the money as they saw fit as long as they were paying employees and business expenses. Instead of applying for a loan, you would have been able just to continue to pay your bills for eight weeks and your bank would cover the cost. Then the Federal Reserve [would make the banks whole].”

Categories: Banking, Today’s Business News