Paycheck Protection Program – Week One Review

The Paycheck Protection Program was supposed to help small businesses retain employees. The goal was to provide both reassurance to business owners and a quick cash infusion for payroll needs. To accomplish this, the law used the private sector to issue loans instead of an SBA-issued grant. To encourage business owners to apply, these loans will be forgiven if the money is spent on approved expenses.

The first week of the program’s existence has been anything but smooth. Banks and the SBA have both been overwhelmed by the amount of demand for these loans. Meanwhile, business owners who were already struggling with business operations during the COVID-19 shutdown have been caught in a tangled mess of both banking and government bureaucracy.

Despite the headaches involved, business owners who spent the last week struggling to submit their applications were among the lucky ones. Many small businesses without a banking relationship are unable to apply. Many others are nervously waiting for their banks to begin accepting applications. All the while, the amount of money appropriated for these loans is quickly being exhausted and the Senate has failed to advance legislation for additional funding.

Overall, the program is struggling to achieve its main objectives. Business owners are not reassured, and few have received the cash they desperately need to cover payroll costs.

The Future of the Paycheck Protection Program

Despite the false start, there is reason for optimism going forward. While additional funding is likely to be delayed by political bickering, we view eventual approval of those funds as almost certain – the PPP program enjoys bipartisan support. It is only a matter of time before more money is secured.

Additionally, over the past several days we’ve seen bankers begin to streamline their application processes while the SBA attempts to increase its capacity to handle approved applications. Some banks have successfully obtained PPP approvals in as little as 48 hours and those clients are simply waiting on closing documents and finally, the funds themselves.

Finally, we should note that there are a lot of devoted people who are continuing to work hard to improve this program and help small businesses.

Many in banking, from underwriters and credit analysts, to managing directors and above, have been working seven days a week to try and help their clients get access to these loans. The same is true for many dedicated employees in the under-staffed Small Business Administration.

Rolling out a several-hundred-billion-dollar public-private partnership in the space of two weeks is a monumental task.

It’s a frustrating process and it’s taking longer than anyone would like. Still, we’re appreciative of the dedicated people we’ve worked with on behalf of our clients over the past several weeks.

What Can Business Owners Do?

Business owners should focus on submitting their Paycheck Protection Program application as quickly as possible. Then, plan for the next several weeks. The best defense against an uncertain future is to be prepared for multiple scenarios and ready to take immediate action when things change.

If you’re waiting to apply – gather your documents now

Businesses with fewer than 500 employees can apply for the SBA Paycheck Protection Program. Payments are deferred for six months, and the loans have an interest rate of 1% and mature after two years. Money from the loan can be used toward payroll costs such as wages, salaries, 401K contributions, insurance premiums, healthcare, and other expenses. Additionally, it can cover rent, lease payments, interest on debts, and utilities.

Even though some banks are currently not lending PPP loans, companies can gather all the necessary forms in the meantime:

• IRS 940, 941 or 944 payroll tax reports

• IRS 940, 941 or 944 payroll tax reports
• Last 12 months of payroll reports
• Document showing the total of employer-paid group health insurance costs (i.e., premiums).
• Document showing the total of all employer-paid retirement benefits (do not include employee contributions)
• Completed SBA Form 2483
• Scans of the drivers license of all owners with more than 20% interest
• A list of all affiliates (other entities you also have ownership in), including owner name, ownership percentage and tax number

Communicate with your banker ahead of time to see if they have any additional requirements.

If you’ve applied or are approved – be ready to account for the funds

Companies that misuse the Paycheck Protection Program loan will be held liable by the Federal Government for fraud. To give yourself peace of mind and make it easy to obtain “forgiveness” after the money is spent, start preparing today.

First, define ahead of time what non-payroll costs you’ll spend the money on. Do the math and make sure you’re ready to use at least 75% of your loan for payroll related costs. It’s also in your best interest to maximize the amount of the loan that you spend on “forgivable” expenses (payroll, benefits, lease payments, mortgage interest, debt interest, utilities) rather than other working capital needs.

Second, we recommend opening a new checking account to deposit the loan into. Then, only withdraw funds from this account as needed to fund payroll and other approved costs. This will make it easy for bankers and accountants to trace your use of the funds, because they’ve never been co-mingled in your company’s main operating account.

If your bank turned you away – explore other lenders:

Click on a link below to begin applying:

Bank Name	Accepting Current Customer Applications?	Accepting New Customer Applications?
Banc of California	Yes	Unclear
Bank of America	Yes	No
Bank of Marin	Yes	Not Yet
Bank of the Sierra	Not Yet	Not Yet
Bank of the West	Yes	No
Banner Bank	Yes	Not Yet
BBVA USA	Yes	No
California Bank and Trust	Yes	Unclear
California Bank of Commerce	Yes	Not Yet
Cathay Bank	Yes	Unclear
Central Valley Community Bank	Yes	No
Citibank	Yes	No
Citizens Bank	Yes	Not Yet
Citizens Business Bank	Yes	No
Comerica Bank	Yes	No
Cross River Bank	Yes	Yes
East West Bank	Yes	Not Yet
Exchange Bank	Yes	No
Farmers & Merchants Bank	Yes	No
First Bank	Yes	Unclear
First Foundation Bank	Not Yet	Not Yet
First Republic Bank	Yes	No
First-Citizens Bank & Trust Company	Yes	No
Fremont Bank	Yes	No
Hanmi Bank	Yes	Unclear
Heritage Bank of Commerce	Paused	No
HomeStreet Bank	Yes	No
HSBC Bank USA	Yes	No
JPMorgan Chase Bank	Yes	No
Mechanics Bank	Yes	Not Yet
Montecito Bank & Trust	Paused	No
MUFG Union Bank	Not Yet	Unclear
Opus Bank	Not Participating	Not Participating
Pacific Western Bank	Yes	No
Stearns Bank	Yes	Yes
Sunwest Bank	Yes	Yes
Tri Counties Bank	Paused	No
Umpqua Bank	Yes	Not Yet
United Business Bank	Yes	Yes
United Security Bank	Not Yet	Not Yet
US Bank	Yes	Yes
Wells Fargo Bank	Yes	No
Westamerica Bank	Paused	No
Western Alliance Bank	Yes	Not Yet
Zions Bancorporation, NA	Yes	Unclear

Updated 4/14/20

Finally, plan for multiple scenarios

If the Paycheck Protection Program has made anything clear, it is that business owners cannot rely on government aid or external financing. You should apply and hope for the best, but you need to create plans for worst-case, expected-case, and best-case scenarios. Ask yourself if you know the answers to these questions:

• What actions do you need to take if your application is denied, or funds run out?
• What if your bank limits your loan to half of what you thought you were eligible for?
• What if the loan is approved, but delayed for a month?
• A best-case scenario: what actions can you take if you secure a PPP loan and its funded immediately?

Scenario Planning lets you respond quickly to changes, without hesitation or second thought. It lets business owners sleep better at night knowing that they’ve already laid out, and prepared for, the “worst-case.”

*Bank analysis by Serena Vasquez, Analyst