The Payroll Protection Program’s second round of funding started on April 27, but some of the issues from the first round are vexing Central Coast bankers and borrowers.
Among technical problems, the Small Business Administration’s website has crashed, limiting the number of applications banks can process at one time. Additionally, financial regulations meant to guard against a 2008-style financial meltdown are still in place, limiting the amount of loans banks can make without stretching capital limits. Guidance about the wildly popular loan forgiveness provisions hasn’t been fully provided.
Jeff DeVine, CEO and president of Santa Barbara-based American Riviera Bank, has seen the positives and negatives from the CARES Act and follow-up funding. American Riviera has processed more than 550 PPP loans, to a total of more than $113 million in funding, and that funding, in theory, has covered almost 12,000 jobs.
Between the four banks based in the Tri-Counties — American Riviera, Montecito Bank & Trust, Community Bank of Santa Maria and Community West Bank — and larger banks, including regional and national units, many thousands of loans and hundreds of millions of dollars have been distributed.
That’s a lot of funding that went out, and most of it happened after April 18, which means it should be impacting the community soon in the form of lower unemployment and less pressure on charities like the Foodbank of Santa Barbara County, which have had to stretch their operations to the max.
For their part, local banks had to devote a lot of resources to process that many loans in the past month.
“It’s a pretty interesting process we’ve all gone through,” DeVine said.
It’s also a lot of loans to put on a balance sheet.
Capital ratios are the percentage of a bank’s capital to its risk-weighted assets. American Riviera has a so-called Tier 1 capital ratio of about 11 percent — very comfortable based on industry regulations, which require banks to be around at least 8 percent. This is possible because the SBA has told banks to consider PPP loans to be almost the equivalent of cash, with a basically zero risk ratio rating.
Regulations around leverage ratios still exist, though, and banks are watching those closely. Leverage ratios are the proportions of debts to its capital, and unlike capital ratios, those don’t have categories of risk that can be used to allow for greater lending. As banks work within the community to keep businesses up and running, they have to be careful to not put themselves in financial risk.
“How much of these loans can we do before we have to stop, even if there’s more money in the program?” DeVine asked.
Some relief may come in the future, when loans start being forgiven. That will reduce the weight on the banks and free up some space for new loans.
That being said, counting on additional space in the future is tricky.
“We don’t even know if the program will even still exist at that point,” DeVine said.
And if it does, the PPP program might have other issues to contend with.
Michael Pfau, a partner with business legal services law firm Reicker, Pfau, Pyle & McRoy, said that businesses who needed help in April will likely still need additional help in May, even if the state reopens in the middle of the month.
“There’s going to be a recovery time,” Pfau said. “These companies are going to need help to fund the type of expenses this program is designed for.”
Because of this, he floated the possibility of a third round of PPP funding once the current $310 billion in funding runs out.
Pfau, who formerly was on the board of directors for Pacific Premier Bank, praised community banks’ response to PPP loans.
As some smaller, local banks have started to take on clients who weren’t customers before the crisis, it’s taken pressure off larger, national banks that because of their size can’t move as quickly.
The issues banks have faced meant many customers, including those who had their papers in order the first day of the program, still haven’t been funded. He hopes those companies will be able to access the same quick approval and funding others have seen.
Overall, though, Pfau held similar views on the program as DeVine — there have been both positives and negatives.
“There were some starts and stops, as with any complicated program on a nationwide basis that’s been expedited,” Pfau said.
• Contact Amber Hair at [email protected]