Playing its part in a massive gold rush aimed at helping local businesses with fewer than 500 workers, Hawaii banks have flipped the switch on a federal program designed to quickly steer some $350 billion to enterprises hurt by the COVID-19 crisis.
The so-called Paycheck Protection Program is part of the $2.2 trillion congressional stimulus package President Donald Trump signed into law on March 27. While other U.S. Small Business Administration programs are administered by the SBA, this one is run by the banks.
Small businesses are quickly lining up. By the end of the day on Friday, Bank of America said more than 85,000 customers had applied for $22.2 billion in loans.
“All the banks in Hawaii are hustling to make this work,” said Rich Wacker, president and chief executive of American Savings Bank. ASB alone has as many as 100 employees working on the loan program, with some working overnight, Wacker said.
The bank already had gotten more than 1,000 applications by early afternoon on Friday, Wacker said. And, he added, “That’s just our bank.”
The SBA has published a list of banks serving Hawaii.
To be sure, the program will not work for every business. Hotels and restaurants, especially those in big cities with high rents operating amid strict quarantines, have said the program is far from ideal for them.
Still, here are five key points Wacker made during an interview on Friday, as ASB and these other Hawaii lenders began taking applications.
“The goal of this program really is to keep people in their jobs as much as possible,” Wacker said.
That means the SBA wants to get money to businesses quickly, in part to keep people off of unemployment rolls, but also so businesses can gear up seamlessly when it’s safe to open again.
Exactly how fast the money would come Wacker couldn’t say, but he stressed loans will be processed “relatively quickly.”
“This won’t solve everybody’s situation.” American Savings Bank President Rich Wacker
The SBA’s application is stunningly simple, mainly requiring the borrower to certify a number of statements: basic things like a promise that the business “was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors,” and that the loan money “will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.”
There’s also a promise that the applicant will provide the bank documentation showing the number of employees, but such documentation isn’t formally part of the SBA application.
That means the banks themselves are asking for some of this documentation.
American Savings Bank, for instance, is asking for 2018 or 2019 tax returns, 2018 or 2019 Form 941s for regular employers or 1099s for contractors. First Hawaiian Bank is asking for similar documents, plus other payroll documentation, like a “payroll schedule or reports from CPA, bookkeeper, or payroll provider.”
The payroll numbers are important because the amount of the loans is limited to 2.5 times the firm’s monthly payroll.
“This won’t solve everybody’s situation,” Wacker said.
But the relative speed at which the loans are designed to get out can be a vital lifeline for many businesses, he said.
While the loans may be relatively small, terms are favorable. The interest rate is just 1%, Wacker said. Plus, borrowers don’t have to start paying back the loans for six months. And the money doesn’t have to be paid back at all if it’s used during the first eight weeks after the loan is made and used for payroll and, with limits, some expenses, like rent.
Given the speed at which the banks are trying to issue loans, there’s obviously the risk of fraud. This means it’s the duty of the banks to make sure the borrowers are legitimate, Wacker said, and not, for instance, drug dealers or others using the system to launder money.
The fastest way for banks to vet lenders, Wacker said, is to work with existing customers whom the banks already know. Otherwise, conducting adequate due diligence takes time and will invariably slow down the process. That’s why banks are suggesting borrowers work with banks they’re already doing business with, Wacker said.
“They’re trying to move quickly,” he said. “There’s not any other motivation.”
There’s one thing about the program that can’t be overstated: Hawaii businesses must move quickly to get a fair share of the loan money. Gov. David Ige alluded to this during his daily COVID-19 press conference when he said the loans are being granted “first come, first served.”
The good news, Wacker said, is that the banks are all working hard to clarify what documentation the borrower needs. And the SBA has created “a remarkably streamlined program.”
At this point, it’s a matter of businesses stepping up.
“It’s how quickly you can get the asks in,” he said.
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