First Horizon Nashville Building

Banks in Tennessee are gearing up for a massive influx of loan applications as businesses across the country scramble for a piece of the recent federal stimulus package.

On March 27, President Donald Trump signed the CARES Act, which is supposed to provide financial relief for businesses affected by the coronavirus pandemic.

Businesses have two primary ways to get help. The Paycheck Protection Program, created by the recent bill, is essentially a grant to help businesses cover payroll for a few months. The bill also funds economic injury disaster loans through the U.S. Small Business Administration.  

The vast majority of small businesses in the U.S. can apply for both programs. The SBA will process the disaster loans, but private banks—with funding from the federal government—will distribute the nearly $350 billion allocated to the Paycheck Protection Program. 

“I think customers need to be prepared to be patient because this is going to tax the entire banking system,” First Horizon’s Director of Government Guaranteed Lending Adrienne Sipe said.

In Tennessee, businesses and nonprofits can already apply for up to $2 million through the disaster loans program. Businesses that apply for the loan can request up to a $10,000 advance before they are even approved.

Businesses won’t have to repay the advance, even if they aren’t approved for the loan. They can only use the loan, including the advance, to pay for sick leave, payroll, rent and a few other types of expenses. 

These disaster loans are the same type of loans the SBA offered following the tornadoes in Middle Tennessee in early March. Businesses affected by the tornado and the coronavirus can apply for two separate loans.

While devastating, the recent tornados only affected businesses in one area of Tennessee. The coronavirus has hurt nearly every business in the U.S. That makes doling out the new loans an incredibly heavy lift for the SBA.

Shawn McKeehan, the deputy director of the SBA district office in Tennessee, said the phone has been ringing off the hook.

”We’ve had a huge amount of calls about it. Our call volume is up 100% over what it was prior to this coming out,” he said. “What folks have to understand is that this is a 50 state disaster … which has never happened in the history of the agency.” 

Lane Rhodes, the SBA point person for Nashville-based Pinnacle Financial Partners, said the new coronavirus disaster loans have slowed down processing for businesses seeking loans to pay for tornado damage repairs.

In 2019, there were about 2,000 full time employees who worked on disaster loans for the SBA. That year, there were about twice as many commercial banks operating in the U.S. That’s why the federal government is relying on private banks to process loans for the $350 billion Paycheck Protection Program.

The Paycheck Protection Program allows businesses to take out a loan equal to two and a half months of their average payroll. As long as companies use the money to pay employees, or a few other operational expenses like rent and utilities, the SBA will forgive the loan. 

However, bankers at Pinnacle Financial Partners and Memphis-based First Horizon Bank warn the funding won’t go far. 

“The money for the Paycheck Protection Program is probably going to run out very quickly,” Rhodes said. "Although, $350 billion sounds like  a huge number ... when you think of the number of small businesses, it's really not that much money.”

According to the U.S. Census Bureau, there were 7.8 million businesses with fewer than 500 employees in the U.S. in 2017. The average monthly payroll for those businesses was about $50,000. If all those businesses apply for the full amount allowed, the program would only have funding to approve loans for about one in three applicants. 

That means speed and preparation are critical for securing a loan. Businesses that are first in line have the best chance of getting a loan. 

“We're going to do our best to process these as quickly as possible so none of our clients end up applying and not getting in line before that spigot gets turned off,” Rhodes said. 

Rhodes and First Horizon’s Director of Government Guaranteed Lending Adrienne Sipe expect their workforces will spend almost all their time on processing applications for the Paycheck Protection Program over the next few months. 

“Every single relationship manager, branch manager in our company is going to be working on SBA loans,” Sipe said. "We have an SBA department of 20 people ... Our department of 20 just turned into a department of hundreds. It's all hands on deck.”

Despite that massive effort, banks will probably lose money on these loans. The SBA is paying some processing fees, but Rhodes and Sipe said they won’t pay for the time bankers spend working on the loans. This project is basically just a service for customers, and the federal government. 

However, bankers say they don’t have all the information they need to prepare. The SBA hopes to start accepting applications on Friday, April 3, but the Treasury Department didn’t post a preview of that application until Tuesday, March 31. 

Sipe said the Treasury Department posted three versions of the application that day, and some of the posted information conflicted with language in the bill.

“We've been eating, sleeping and breathing it over the last two weeks,” Rhodes said. “Every day it changes.”

In the absence of clear information, Rhodes and Sipe said business owners should start collecting documents they’ll likely need, such as accurate accounting of their payroll over the last year.

Once banks get finalized information from the Treasury Department, Rhodes said they will still need to interpret it, create new loan documents and get that information to customers, all at a time when physical branches are mostly closed.  

“We're literally working around the clock,” Rhodes said. “We're all trying to stay working on this stuff so we can roll it out as quick as possible.”

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