By Ray Birch
CARSON CITY, Nev.—If the big banks jump into new round of Paycheck Protection Program (PPP) loans with both feet, credit unions can expect borrower interest to be steady. If they don’t, CUs should get ready for a lot of work.
That’s a forecast from Jeremy Gilpin, EVP for Greater Commercial Lending, a CUSO of Greater Nevada Credit Union here, which in 2020 provided what is believed to be a record in the CU community with $583 million in PPP loans.
Part one in this two-part series on PPP loans can be found here.
“Last time, especially in the first phase of PPP lending, the large national banks soaked up a lot of the available funds,” Gilpin reminded. “If the national banks step in this time, business could be a lot slower for credit unions. But if they look the other way, it could be really busy for credit unions this time around.”
The newest round of the PPP began Monday, with the first few days of the forgivable loan program open only to applications processed and submitted by community financial institutions. In addition,, through today, applications are limited to small businesses that did not receive PPP loans in 2020. Those applying for a second loan can begin doing so on Wednesday — but only from community financial institutions.
Gilpin said that to be effective in the new round of the PPP, financial institutions will have to have made some changes to their systems and processes. He emphasized that’s much harder—and more expensive—for a large bank to do than a smaller credit union.
“They are not as nimble,” said Gilpin, suggesting that could be a big reason for big banks to sit back and not be as aggressive in PPP lending in 2021.
A Key Change, A Key Lesson
One key aspect of the lending business financial institutions need to change for this round of PPP, according to Galpin, is their communication methods.
“I think a key lesson learned from the last time is strong communication and timeliness are critical,” explained Gilpin.
Gilpin acknowledged it had been very difficult to communicate effectively with borrowers about their loan status, and the rules and requirements of PPP, since the U.S. Small Business Administration (SBA) and Treasury were changing the policies and the regs “almost on daily basis.”
With SBA systems expected to run much more smoothly this round and with rules ironed out, good communication with borrowers is expected to be easier, Gilpin said.
“Communication was difficult to establish and to stay up with last year,” said Gilpin. “The chain of communication, between the government and lender and lender and borrower, was broken. For example, the SBA would post something new about the PPP program but they wouldn't let the lenders know. That affected the timeliness of the distribution of funds to the borrower.”
A Recommendation
Gilpin recommends that credit unions refresh their lending software to include communication systems, which is what Greater Commercial Lending has done. The CUSO now has a solution in place to allow borrowers to track the progress of their PPP loan online.
“They will see the progress in real time. They will see the same thing we can see about the progress of their loan,” Gilpin said.
He emphasized the importance of that type of communication during a time when businesses are going through a tremendous period of turmoil.
“The borrowers are looking at their employees and saying, ‘How am I going to keep you on payroll?’” Gilpin said. “How am I going to keep your families and your kids together in your homes—not to mention the stress of a business owner who’s put their entire life savings and children's savings into their business. And how will borrowers keep their own families going and in their homes? This is a very stressful period, and good communication can really help people.”
Reduced Reputational Risk
Strong communication will also reduce the chance for reputational risk, added Gilpin. During 2020, numerous credit union CEOs told CUToday.info they were concerned about the reputation of their credit union being damaged from PPP loans that were delayed within the SBA system and over their own inability to provide any update on the loan application’s progress. The fear was members would blame the delay on the credit union.
Gilpin thinks that won’t happen this time.
“I see this round of PPP going much more smoothly,” he said. “There will not be all of the changes in guidance from the SBA, their systems are better, they have had time to prepare for this round, as opposed to the first round of PPP that was launched very quickly. The first time we just all muscled our way through it.”
Despite all of the issues in 2020 with PPP, Gilpin believes the support provided by credit unions then and in the coming months “solidifies what credit unions are here for,” he said, noting the big banks may be much smaller players in 2021.
“And this time, I think it will be the credit unions and the smaller community banks that come through and shine.”
Greater Commercial Lending has released a video with tips for the next round of PPP.