Several Cleveland-area banks have injected millions of dollars in cash infusions into area small businesses affected by the COVID-19 pandemic.
The much-needed direct loans, which are an incentive for small businesses to keep employees on their payrolls, are funded through United States Small Business Administration's $600 billion Payment Protection Program.
Scott Taylor, president and CEO of The Bank of Cleveland, said the loans, which are available to businesses with 500 employees or less, have been a lifeline for area businesses, enabling them to retain employees during the economic downturn caused by the novel coronavirus.
The SBA will forgive the loans if employees are kept on payrolls for eight weeks, and if the money is used to cover payroll, rent, mortgage interest or utilities.
Since the PPP program was launched, Taylor said his bank has loaned approximately $20 million to 190 local businesses.
When the program was first announced, Taylor said initial guidelines were still being put into place, with bankers scrambling to learn the details of the program.
“The first time, we had a lot to learn,” he said. “We didn’t have applications for the loans. It was an ongoing, fluid process.”
Taylor said lenders at his bank were working seven-days-a-week just to keep up with demand, which has slowed down just recently.
“We have funded all the requests,” he said. “We’re not getting any new requests at this point,” he said.
He said he expects all loans will be forgiven by the federal government. For those who don’t qualify for forgiveness, Taylor said the SBA will offer a six-month deferment, which will be followed by an 18-month payment period.
Richard Burnette, vice president of commercial lending at Andrew Johnson Bank, said the bank has processed approximately 40 to 50 loans, ranging from $2,000 to $800,000.
“It’s been going well,” he said. “A lot of businesses have been taking advantage of it.”
Although the loan process was a little slow at the outset, by the second round of funding launched by the SBA, the process was simplified.
Burnette said the loans were vital in keeping companies such as mom and pop businesses afloat. In addition, he said the loans did not require a “personal a guarantee or collateral.”
Southern Heritage Bank's Tim Poteet said his bank jumped in to help businesses before the SBA had announced the program.
“We made the decision before it was announced by the SBA,” he said. “We wanted to do everything we could to help.”
So far, Poteet, who is Southern Heritage's community president, said the institution has lent $50 million into the local economy.
He said the work involved in processing up to 800 loans led to some long working hours.
“I never thought as a banker I would be working on Easter weekend,” he said. “We had one banker who worked 28 days in a row, but we had to do it.”
Poteet said he is hopeful the companies will retain the employees in what is probably the worst periods of unemployment in decades.
“I've read that it is 14.7% nationally,” he said. “Those are some scary numbers.”
However, Poteet said a majority of those who are unemployed will be back to work soon as the economy begins to open back up.
“About 90% are short term,” he said. “That’s promising.”
The more than $600 million fund has dried up quickly as businesses lined up for help.
As of Friday, the SBA announced it had given out roughly $185.4 billion of the second round of funding for the PPP.
"That means that less than $125 billion of the $310 billion authorized for the program by the latest stimulus bill remains," the SBA said.
Some of those businesses may have to return the money.
According to the Associated Press, more than 40 public companies have pledged to return money to the government's small business coronavirus fund now that Treasury Secretary Steven Mnuchin is threatening criminal prosecutions for violating the rules of the program.
"The administration has given companies until May 14 to give back money without penalty," the AP reported. "It's a key test for President Donald Trump's administration as it tries to ensure the $600 billion-plus emergency lending program helps small employers preserve jobs in an economy shedding them at a staggering rate."
Questions about the loans have led Mnuchin, the chief architect of the rescue plan, to take on the role of enforcer.
He has warned companies that they must reimburse the Treasury if they falsely certified they needed federal aid to operate and could not get it elsewhere.
The SBA also says it will audit every loan exceeding $2 million. If problems are found, it will withhold the program’s offer to forgive the loan, the AP reported.
“So anybody who took the money that shouldn’t have taken the money, one, it won’t be forgiven, and two, they may be subject to criminal liability, which is a big deal,” Mnuchin said in an interview on Fox Business Network.
"According to the data analytics company FactSquared, 42 public companies had agreed as of Wednesday to return loans totaling $337.1 million," the AP said
"None explicitly mentioned the possibility of criminal prosecution as a reason for their decision."