By Ray Birch
CARSON CITY, Nev.—One CUSO that has completed well over 6,000 Paycheck Protection Program (PPP) loans on behalf of credit unions said it didn’t enter into the program looking to drive income, and instead sees the real value in driving CU relationships deeper within their communities.
Greater Nevada Commercial Lending, the business lending CUSO of Greater Nevada CU here, further suggested that while the PPP is winding down the money it has available, and with attention now on loan forgiveness, how that process goes will ultimately determine the success of the more than $600-billion federal program.
Reflecting the haste with which it was completed, the Paycheck Protection Program was fraught with problems early on, including approval delays, confusion over rules, and Small Business Association (SBA) site crashes, and yet in spite of all that it still quickly exhausted its initial $349 billion in funds.
Now, after ironing out many of the application and process issues in the $310 billion second round of funding, experts fear the real challenges will come as business borrowers file applications seeking forgiveness of the loans, which are designed to help companies maintain employment levels during the coronavirus pandemic.
Preparing for the Flood
As CUToday.info reported, FIs are preparing for a flood of applications for loan forgiveness under PPP, and they are marshaling staff to help borrowers navigate a complicated process. What has many concerned are compliance-related questions and whether the loans will actually be forgiven as so many of the small business applicants expect—or will there be small business owners streaming into credit unions upset they are expected to repay?
As CUToday.info also reported, the House has approved updates to the program that change the ratio of funds that must go toward wage-related expenses.
“The kinks in the program have largely been worked out by now,” said Wally Murray, CEO of $1.1-billion Greater Nevada CU. “Now we'll see how it goes on the forgiveness side. I would encourage all credit unions to closely begin monitoring what goes on the forgiveness end and see how this process plays out. Obviously, it’s a key element in all of this.”
Murray added the forgiveness phase may go better than some expect, as many borrowers in round two have been more careful in their requests.
“In the second round businesses are being a little bit more cautious,” he explained. “They're actually trying to make wise business decisions, applying for these loans, making sure they understand the parameters around forgiveness, and also the timing with respect to forgiveness.”
Murray the timing of the forgiveness period is a major consideration as states across the country reopen.
“The timing of the PPP loan is critical, because it triggers the clock relative to forgiveness,” reminded Murray.
Not In It For the Money
Wally Murray
While Greater Nevada Commercial Lending had provided more than $560 million in PPP loans for its credit union partners nationwide as of early May, the CUSO told CUToday.info the program is not a major income stream.
“We don’t see the PPP as a revenue driver. Our primary purpose for offering the program is to help people—our motto is ‘People Live Greater’,” said Danny DeLaRosa, chief development officer at Greater Nevada CU.
“Our main goal was to help address the community needs we saw quickly developing by trying to provide businesses a viable source of liquidity while they were shut down and unable to generate revenues of their own so that they could continue employing their people,” DeLaRosa continued. “Since the compensation for lenders mainly comes from fees that are paid from federal tax dollars, Congress intentionally sought to structure PPP so there would not be any lender windfalls while providing enough revenue to encourage them to deliver the product to businesses of all sizes below the maximum threshold.”
Banks Take Different View
However, as CUToday.info has reported, many banks expect the PPP to be a significant revenue source in the second and third quarters of the year, source, while also helping existing borrowers who are at risk of defaulting and driving up already heavy credit costs. Indeed, one bank called the PPP loans a “primary engine for growth.”
S&P Global Market Intelligence has reported that based on loan size data released by the government in mid-May, aggregate fees have averaged 3.1%.
“That would represent $20.3 billion in total fees based on the full federal authorization for the program so far, and a far better return than securities yields .... Some banks also hope to use PPP loans with new clients to peel relationships away from large competitors that angered borrowers with long processing delays,” S&P Global said.
As for retaining members, credit unions are always at risk of having members leave for another provider if they can’t meet their needs, said DeLarosa.
“And especially if we can’t meet them when they need us the most,” he said. “Conversely, we also have the opportunity to attract new members when we can deliver something they are unable to get somewhere else, or if we can deliver it in a way that is perceived as better. PPP should not be a credit union vs. bank thing, and should never be. There are far more important issues at stake here.”
Murray said the CUSO made the decision early, as soon as the CARES Act was proposed, to be involved.
“We launched on April 3, the first day of the program, and we were up and running by 11 that morning. And as we all know, the process hasn’t exactly been smooth sailing,” said Murray. “We were not surprised by that, and the government typically doesn't move very fast and when it tries to move fast it doesn't move very efficiently. And that is not a criticism of the government. But we understood that.”
Shuffling Staff
But rather than staying on the sidelines and waiting until the SBA hammered out some of the kinks, the CUSO decided to move forward.
“We decided to take the government at its word, and knowing these loans were fully backed by the government…we shuffled people from the credit union over to the commercial lending CUSO on a temporary basis and we had some excess staffing as result of things that went on in the credit union as result of the pandemic, such as reducing branch hours,” said Murray.
Murray said the CUSO’s origination staff typically is eight to 10 people.
“We created an application portal for the businesses to apply for PPP loans, and obviously our people are manning the phones,” said Murray. “Yes, there were a lot of questions about the application process and now most recently about the timing of the delivery of the delivery and closing of their loans.”