Anxiety grows as small businesses in Colorado desperately ask banks for federal loan bailout

For five days, Steven Marks, who runs a consulting firm, eagerly waited to apply for a loan under the new federal paycheck protection program. Vectra Bank Colorado, its commercial bank, had still not opened its online loan application site, as other banks injected billions of dollars in emergency loans.

“The advice they gave us is that it will be on a first come, first serve basis,” he said. “We are waiting and we cannot apply. The funds may not be available, ”he said.

Like someone swimming in the ocean after a large ship capsizes, he’s worried that all the lifeboats will fill up and pull away. He can’t help but have a sinking feeling.

“I can sympathize a lot with small businesses,” said Don Childears, CEO of the Colorado Bankers Association. “They can see the lifeline, but they can’t reach it.”

Congress has made $ 349 billion available for loans to small businesses facing financial hardship due to the COVID-19 outbreak. Small businesses with fewer than 500 employees can borrow up to 2.5 months of payroll. If they use at least 75% of the funds for employee expenses, the loan is repayable.

Nonprofits and churches can also borrow money through the program. Companies backed by private equity cannot, and the question remains open to agricultural companies. Sole proprietors and workers in the gig economy can apply on Friday, sparking another wave of demand.

As of 2 p.m. Tuesday, the Paycheck Protection Program had granted $ 70 billion in loans to 275,000 borrowers through 3,200 lenders nationwide, Childears said, citing figures from the Small Business Administration. To put that in perspective, the SBA backed $ 28 billion in loans all last year. And loan volumes are expected to increase as more banks join the program.

The rules for the program only fell a few hours before loan applications opened on Friday. Some banks rushed in, overcoming concerns that they might issue bad loans that the SBA would not back, while others chose to wait and get advice.

“We wanted to get it right,” said Bruce Alexander, President and CEO of Vectra Bank Colorado. “My feeling is that sometimes you have to go slow to go fast. We’re taking a few extra days to make sure we have the right information. “

The bank’s trade loan officers reached out to customers needing assistance and processed the loans manually for them. The bank processed PPP loans, Alexander said, but not at the volume allowed by the automated system.

“All of us in the industry participate in the program. Our job is to do everything we can to save our small business customers, ”said Alexander, noting that the level of frustration is high on many fronts.

Marks said he has been doing business with Vectra Bank since 2004 and has a good relationship with the bank. But he was frustrated by notices on the bank’s website that an online application portal was imminent. The site promised to go live on Tuesday afternoon, which it appears to have done.

“What worries me is that all of the bank’s customers will come in at the same time and crash the site,” said Marks, owner of Front Range Counseling, which has two offices.

Borrowers are encouraged to stick with banks with which they already have a relationship. Switching to a new bank will require identity verification and documentation of salary expenses and other financial information. This will extend a loan approval.

But some companies have no choice but to start swimming to other banks. Colorado’s largest bank, Wells Fargo, has already hit its $ 10 billion loan limit due to a regulatory cap on its ability to grow.

Wells Fargo made $ 83 million in 7 (a) SBA loans last year in the state, almost as much as the three largest SBA lenders combined. Unless regulators grant a stay, thousands of its Colorado customers could find themselves desperate to reach out to competitors, who are desperate to save their own customers.

Since the loans will only pay 1% interest, there really is no profit motive to attract foreigners. But there is a strong financial incentive to save customers.

“If you can help this business stay alive, you’ve minimized your own losses as a lender. It makes sense, ”Childears said.

About a third of the state’s banks were active SBA lenders and pushed back on PPP loans, he said. Since the program initially had a list of 16 potential exposure points, they took a risk. That list has since been narrowed down to three areas of exposure, encouraging more banks to lend. Basically, if a borrower lies to a lender, that customer will be held responsible.

Another third of the state’s banks had SBA approval to make loans, but were not active lenders. It took longer to get them into the SBA’s loan approval system, which crashed for several hours on Monday due to high demand. The last third did not have approval in the SBA system and are working to get it.

“None of us knows how quickly this $ 350 billion could be consumed. The money will not be enough for the demand that seems to exist, ”Childears said.

But there is good news on this front. U.S. Senator Susan Collins, R-Maine, tweeted Tuesday that the administration has agreed to support its efforts to add an additional $ 250 billion to the paycheck protection program.

And in another important step, the Federal Reserve announced Monday that it will soon release details of a program to buy back PPP loans made by banks. Banks could offload their loans and go back and save another round of businesses.

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