Tennessee banks are struggling to keep pace with the onslaught of applications for the federally-backed loans meant to help businesses hurt by the COVID-19 outbreak as businesses seek relief from the worsening economic crisis.
The Paycheck Protection Program is a $350 billion portion of the $2 trillion stimulus package approved by Congress on March 27. Both the massive size of the program and the break-neck pace of understanding and then implementing the program has posed significant challenges for the participating lenders.
"We are trying to implement a plan that was passed on one Friday. Instructions come out the next Thursday night for loans to be placed on Friday morning," Colin Barrett, CEO of the Tennessee Bankers Association, said. "It has been chaotic."
The loans, accessed through banks, are forgivable if a small businesses retains its workers or rehires any laid-off employees. A firm can apply for a loan of up to $10 million to cover payroll and other expenses. The loans require no collateral and carry just a 1% interest rate. Businesses with 500 or fewer workers impacted by COVID-19 qualify.
The pandemic has devastated the tourism industry, one of Tennessee's leading sectors, and the impact has spread to retail, health care, manufacturing, farming and marketing.
In Tennessee, nearly 99 percent of Tennessee's private sector is comprised of businesses with fewer than 500 workers. That includes more than 160,000 businesses employing more than 2.1 million people.
"That is a lot of businesses in Tennessee," said Chris Holmes, CEO of Nashville-based FirstBank. "The scope of the program is really unprecedented in terms of how many have an interest. We are seeing that in every market across the state... It is full speed and all hands on deck."
Applications from Tennessee small businesses are being processed, but data on how many is not available, Barrett said.
Barrett said the system that is processing the Paycheck Protection applications is accepting more applications in a 24-hour period than it typically does in a year, leading to tech issues and delays.
"Banks are hearing nonstop from their borrowers," Barrett said. "We are urging patience."
After a bank approves the loan application, the lenders send them to the U.S. Small Business Administration for approval. Then the deal must be closed with a note signed before money is sent. Pinnacle Financial Partners CEO Terry Turner said he expects approved businesses to see a check in the next week or two.
Barrett advised business owners who did not need the money immediately to wait a few days to apply, so that those in the more dire sectors, such as restaurants, can access the available funds more immediately. Bankers have been assured by Treasury Secretary Steve Mnuchin that more money will be authorized if it is needed, he said.
The Federal Reserve said it's creating a program to make billions of dollars in additional funds available to banks for the loans.
"Some people need access to these loans last week," he said. "Some people don't necessarily need it right now."
Tennessee Department of Financial Institutions Commissioner Greg Gonzales sought to spread awareness of the availability of the federal funds at a press briefing and encouraged interested businesses to reach out to their banks. He also urged patience from business owners seeking to access the funds.
"In partnership with the federal government, Tennessee banks are doing everything they can to process loan applications quickly," Gonzales said. "Businesses should expect it will take some time before the program is fully functioning.... Each day the process continues to improve."
Gov. Bill Lee also stressed his appreciation to the small businesses who are weathering the crisis on Tuesday.
"We know you have borne the brunt of this, but we are working very hard with the federal government and our local institutions to make sure we can assist you through this process and that we can actually be there to help you get your legs back under you and back on your feet when the time is appropriate. We are committed to that process all the way through this pandemic."
'Around the clock'
work for lenders
Holmes said FirstBank employees worked "around the clock" over the first weekend to begin processing loans. Bank leaders had to make sure they understood the program, make the website related to the new loans operational and inform employees about the terms of the program.
"We wanted to make sure we had a full understanding of the program and that we could accurately and efficiently take care of our clients," Holmes said.
While Pinnacle, Tennessee's third-largest lender by deposit market share, wants to move quickly, the bank needs to make sure the loans will be categorized so they can be forgiven, Turner said. The bank also wants to make sure the SBA guarantees the loans, which could fall through if errors are made in closing.
"In our case, literally 4,000 applications in a day, $1 billion in a day, is an astounding volume," Turner said, adding that the bank has $19 billion in loans and $28 billion in assets.
Pinnacle held several webinars for clients that filled up with the maximum 1,000 participants, which provided an early indicator of the anticipated demand for the loans. Business owners had questions about technical details in the loans, such as whether to include vacation days in payroll costs, Turner said.
Bank of America, the fifth-largest lender in Tennessee by deposits, launched its approval process April 3 and allocated thousands of employees to assessing the Paycheck Protection Program loans, according to spokesman Bill Halldin.
"The biggest thing so far has been our ability in short order to be able to launch first thing Friday," Halldin said.
"Now, we're focused on trying to move these applications through the process, which includes Small Business Administration approval, as quickly as possible."
As Holmes and others in the banking sector have encountered obstacles related to the new program, he has advised his team to consider the big picture, he said. That includes recognizing the threat of a global pandemic, the historic achievement of passing a massive stimulus package, writing rules for and implementing a new lending program all within a month's time.
"The world has come to a stop because of a pandemic that nobody expected, and the scope of which we have never seen," Holmes said. "This is historic. This kind of thing hasn't happened before. So are there small frustrations? Yes, but I think that is easily overwhelmed by the pride and the desire to be part of the solution."
Michael Epps Utley, president of GoEpps digital marketing firm in Nashville, said he applied for the paycheck loan on April 3 through Bank of America after unsuccessfully attempting to apply twice through the SBA's website. When he contacted Bank of America ahead of April 3, he was given information that conflicted with what he had read from the SBA.
"Since their process has started, it has gone smoothly," he said. "It was a very chaotic experience for people on the receiving end to try figure out how this thing was going to work."
While Utley has not endured the drastic downturn that restaurants have experienced, his firm's revenue was cut by 15 percent for the year in just a two-week period because of the virus outbreak.
The loan he applied for could help him replace lost revenue and keep his seven full-time employees paid.
"We were having our strongest year ever. The COVID shutdown was almost a dead stop in the energy of the year for businesses," he said.
Reach Jamie McGee at 615-310-1873 and on Twitter @JamieMcGee_. Reach Cassandra Stephenson at [email protected] and on Twitter @cstephenson731.