William Keller looks out the window of his community bank in Oakland and sees the empty streets and closed businesses, victims of an emergency shelter designed to slow the spread of the coronavirus.
There is the restaurant whose owner is a customer of Keller Community bench of the bayand is among thousands of small business owners in the Bay Area who are considering applying for the Paycheck Protection Plan’s soft loans for businesses with 500 employees or fewer, part of the federal stimulus package.
“When this person came in looking for this particular loan, it meant something very different than applying online,” said Keller, the bank’s president and CEO. “At that point you need someone who sees you as an individual so that you are prioritized.”
The chaotic implementation of the paycheck protection plan, which as of Thursday had used up the $349 billion originally approved by Congress, left small businesses worried and frustrated and barred from applying to some big lenders like San Francisco-based Wells Fargo, which have either the maximum exhausted credits or only accepted applications from existing customers. Big banks are likely to prioritize larger companies with hundreds of employees, experts say, pushing companies with just a dozen employees to the bottom of the line. Banks and credit unions are hoping Congress will soon approve additional funds for the Small Business Administration program, which had already approved more than 1 million loans Monday.
Before the money ran out, credit unions and community banks stepped into the void left by big banks, saying their neighborhood ties and willingness to lend to the smallest businesses made them perfect for the moment. For some, the coronavirus crisis is reminiscent of the 2008 financial crisis, when big banks pulled out and smaller financial institutions continued to lend.
“We have no choice, there is no other business area. We invest in this community in good times and bad,” Keller said, adding that demand is so high that the community bank has moved 80 percent of its employees into the loan program. “I know that one day these streets will be full again and we will be here.”
Keller estimates he was able to approve about 175 of the 400 applications, many for loans less than $100,000. That’s less than half the average PPP loan of $239,000. But some companies eventually decided not to even apply, including the restaurant near his office.
Bianca Blomquist, California policy and engagement manager for Small Business Majority, a national nonprofit advocacy group based in the Bay Area, said she spoke to Northern California members of her organization who were trying to gain access to the federal loans.
“The only people I have on my list that I’ve heard of processing these applications are community banks and credit unions,” Blomquist said. “It’s insane.”
Ryan Donovan, chief advocacy officer at the Credit Union National Association, says his members are keen to join the Paycheck Protection Program because they help Neighborhood business is part of their mission. Unlike banks, credit unions are nonprofits owned by their members, but they make up less than 8 percent of the financial services sector, so they can’t help everyone. Wells Fargo is worth $1.9 trillion. Only a dozen credit unions in the country have more than $10 billion in assets, he said.
That’s why credit unions couldn’t fund a bailout of the airline industry, he said. But “they can help the airline caterer, they can help the people who have a shop at the airport.”
One of the challenges of the federal loan program, Keller says, is that success depends on speed — how quickly a company can complete an application for a customer.
“We have many, many smaller clients and the system is just set up so it takes as long to process a $30,000 claim as it does a $10 million claim,” he said. It makes more sense for big banks to focus on the big $10 million applications and leave smaller companies behind. One of Keller’s clients was approved for a loan of just $6,500 that larger banks might have turned down.
With millions of businesses shutting down, the demand for federal loans has become so great that online lenders also came onto the market. Payment platforms Paypal and Square Capital, as well as Intuit, which owns QuickBooks Capital and TurboTax, have been approved to originate PPP loans.
“I was living in 2008-2009 and I thought that was awful,” said Diana Dyska, CEO of the California Credit Union League. “This is by far 1,000 times more complicated.”
But credit unions are going along solid financial basis and began early to take measures to protect their customers. According to Dyska, California credit unions have already issued about 10,300 mortgage payment extensions and 179,500 consumer loan payment extensions. She hopes that once the crisis is over, these customers and small businesses will remember this and decide who to bank with.
It’s happened before. In the decade after the Great Recession, Donovan said, credit union membership nationwide grew more than 30 percent to 120 million customers.
As Congress debates additional money for PPP loans, organizations representing credit unions and even Majority Speaker Nancy Pelosi, D-San Francisco, have demanded a share of the new money put aside specifically for borrowers applying through credit unions and community banks. Donovan said he supports it — as long as that money is a floor on how much credit unions can borrow, not a cap that cuts them off from the rest of the funding. Keller is urging its customers to complete their applications in hopes more money will be made available — Wells Fargo issued similar guidance.
For Blomquist, small businesses turning to smaller banks is a good thing for another reason — they’re more likely to do a lot more follow-up after a loan is made to ensure those businesses thrive and can repay their loans.
“It could be a game changer for community banks,” she said.