Graduates and faculty of CUES School of Business Lending among those poised to help
The first phase of the Paycheck Protection Program administered by the U.S. Small Business Administration was a pool of $349 billion set out to help qualified small businesses offset their employee payroll costs and a few select additional expenses over the next couple of months amidst the closures and other businesses challenges presented by the pandemic.
That pool ran dry last Thursday (April 16) after a great deal of confusion about the program’s application, approval and possible forgiveness processes—and concern that the loans weren’t reaching the businesses, including microbusinesses, that might need them most.
Experts in the small-business lending realm hope lawmakers will replenish the fund this week by passing a law providing the program with at least another $300 billion. As of yesterday (April 19), officials close to the bill were optimistic it would become law.
In the meantime, a variety of companies and credit union service organizations are stepping up to help credit unions that are not SBA lenders help their business members through the program. The idea is to get applications into the pipeline, ready to go if the needed funding does come through.
One such company-CUSO partnership has been forged between Hipereon, Kirkland, Washington, and Greater Commercial Lending, a CUSO of $1 billion Greater Nevada Credit Union, Carson City, and a preferred partner of the SBA.
“The PPP loan funding is desperately needed by small businesses, but the application processing and underwriting services have not stood up well to the level of help that is needed,” explains Jim Devine, CEO of Hipereon and a faculty member for School of Business Lending™, which CUES has converted to an online program taking place in early June.
“We decided to create a PPP loan application packaging service to help credit unions address this bottleneck scenario,” Devine continues. “We are also leveraging our many years of teaching/training know-how to coach business owners through this complex loan application process so we can move quickly and efficiently.
“The only CUs that can technically process these loans are those that are already approved SBA lenders,” Devine adds. “We created this PPP loan packaging service with 25 loan packagers and five quality control staff members to help credit unions address the need to organize the application packaging and processing requirements and enable CUs that are not currently SBA-approved lenders to offer this program to their members.”
The loan packages screened by the Hipereon team will be sent on Greater Commercial Lending for loan documentation and table funding, Devine adds. Notably, the Greater Nevada CU and Greater Commercial Lending teams include four graduates of School of Business Lending. Once documented and funded, the loans will be sold back to the referring credit union. (Email the packagers.)
Neither Hipereon nor Greater Commercial Lending charges a fee to either the referring credit union or the borrower. Both organizations are paid out of the SBA agency agreement, according to Devine.
“Greater Commercial Lending will retain the servicing responsibilities and manage the loan forgiveness application process for the borrower,” he adds. Any portion of the loan not forgiven will roll over into a two-year loan with 0.5% interest. In the event of any default, Greater Commercial Lending will coordinate the 100% SBA guarantee claim with SBA and the Treasury and pay the lender whatever is left due on the loan.
“This is a turnkey system that will take the hassle out of the app packaging process for credit unions,” Devine says. “Each CU using the packaging service would have to agree to buy back the loan(s) once they are documented and funded by Greater Commercial Lending. Given the 100% SBA guarantee and the short term that the majority of the principal for these loans will be outstanding (90 to 120 days if the borrower uses the funds for the intended purposes), this should not be a problem for any CU that wants to help their business members.”
According to Devine, SBA has indicated the average loan processed through the Paycheck Protection Program so far has been $250,000 or more. Since the eligible loan size is based on multiplying primarily monthly payroll by 2.5 times, that means that average monthly eligible expenses are running at $100,000 or more.
Doing the math to consider what businesses have already gotten loans, “you are likely talking about businesses with 20 employees or more that are generating $2 million or more in annual sales volume," he says. “There are also a lot of borrowers that have tapped the PPP fund for well over $1 million. Many businesses that generate $1 million or less in annual revenue are probably not reflected in this approved loan pool. Ironically, they are the small businesses that need the most help. There is pent-up demand waiting for the second round of funding.
“Hopefully community-based financial institutions, including many credit unions, will get first crack at processing this next wave of PPP apps so that the true small businesses can get some help. Wouldn’t it be nice to see CUs get the chance to use this program to help their small business members and not get pushed aside by the banks?”
Lisa Hochgraf is a senior editor at CUES.