The U.S. Small Business Administration began rolling out a new round of Paycheck Protection Program loans Monday, giving Arkansas small businesses that have not previously borrowed under the initiative exclusive access to funds this week.
Arkansas community bankers were working throughout the day to prepare loan applications on behalf of first-time borrowers, who can request up to $2 million in forgivable loans.
Community financial institutions like Farmers Bank and Trust Co. of Blytheville will have priority in submitting loan applications at least through Wednesday, according to rules the SBA rolled out beginning Friday and throughout the weekend.
"We're not expecting the same kind of volume we had the first time last year and I don't think it will be as urgent as it was then," Randy Scott, president and chief executive officer of Farmers Bank, said Monday.
Only community financial institutions, community development financial institutions and microlenders are allowed to submit loans over the first few days in the initial round of funding. SBA officials estimate that there are about 18 lenders in Arkansas that are qualified to participate under the exclusivity rules.
The federal agency, which has $284 billion available to lend, is targeting small businesses that had trouble gaining loans in the initial Paycheck Protection Program rollout last year. SBA is hoping to reach groups that include underserved, minority, veteran, rural and women-owned businesses.
"We're giving priority access to smaller businesses that maybe didn't have access to [Paycheck Protection Program] loans during the first draw (last year)," Edward Haddock, Arkansas state director of the SBA, said Monday morning as the Paycheck Protection Program program opened.
"This is really a mission to reach underserved borrowers and hard to reach communities," he said. "Community financial institutions are really the gatekeepers for a lot of those underserved borrowers."
In addition, the initial funding round has been expanded to include 501 (c)(6) organizations such as chambers of commerce and trade associations along with housing cooperatives, television stations and newspapers, and destination marketing organizations like the Little Rock Convention & Visitors Bureau. The program expires March 31, or when the $284 billion is exhausted, whichever happens first.
This new round of Paycheck Protection Program funding, approved by Congress in December as part of a broader financial stimulus package to battle the coronavirus, also allows borrowers to cover additional expenses, such as operations costs, property damage costs, supplier costs and worker protection equipment. Funding in 2020 was generally limited to payroll, rent or mortgage expenses and utility costs.
SBA rules rolled out over the weekend give community lenders first crack at submitting loans for first-time borrowers through today.
Beginning Wednesday, those same community-focused lenders will have exclusive rights to submit loans for a limited number of businesses that borrowed Paycheck Protection Program money last year. Only businesses with fewer than 300 employees that experienced at least a 25% reduction in revenues will be able to request a second Paycheck Protection Program loan under the SBA rules.
The goal is to "give smaller, hard-hit businesses a second bite at the apple," Haddock said Monday.
Last year, loans of up to $10 million were available to businesses with fewer than 500 employees.
There is no timetable yet for when traditional lenders will be able to submit applications for borrowers, though SBA officials said there should be funding available for all who need it.
"We think there is sufficient funding out there to not create a panic," Haddock said. "We will continue to serve borrowers until this program is completely exhausted of all resources."
Under SBA rules, only lenders can apply for Paycheck Protection Program loans on behalf of their small-business clients. Firms apply to lenders, which make sure those businesses qualify for the program and then turn around and submit the applications to the SBA.
Last year, businesses and banks rushed to apply for Paycheck Protection Program loans when the program opened, producing an overwhelming volume of requests that choked the loan portal and shut it down. The initial $349 billion that Congress approved for the program was gone in a few weeks.
Bankers are predicting a less frenzied approach this year.
Farmers Bank, which primarily serves Mississippi County, had about 200 requests for loans in the first week of funding last spring. Scott said he expects maybe 50 requests this week.
"The first time around everybody was scared the program was going to run out of money and were trying to beat others to apply," he said.
"This time it seems like businesses are more confident there will be money available and they're not as urgent to get requests in," Scott added. "There was a lot of fear involved in the first round. This time the process should be much easier on borrowers and on banks."
Last year, Farmers Bank made 256 Paycheck Protection Program loans for $245 million.
More than having priority access, community lenders will benefit most because SBA has set aside $15 billion in the program for their exclusive use in making Paycheck Protection Program loans, Arkansas bankers said.
Arkansas Capital Corp. also has priority access as the program opens but President and Chief Operating Officer Sam Walls said the Little Rock organization wants to make sure it understands the lending rules before submitting applications. "We are going to participate as quickly as possible but we want to make sure we do it responsibly," he said.
Though Walls noted that the decision to set aside $15 billion of the $284 billion in the program for use only by community lending organizations is more beneficial than having exclusive access in the first days of the program.
"Carving out a piece of funding for CDFIs [community development financial institutions] is more important, in my view, than having priority access at the front end of the program," Walls said. "The bigger bonus for us is going to be to have that segregated pool of money available."
Generations Bank of Rogers initially thought it would qualify as a community lender with a priority to begin issuing loans now but the bank learned Monday morning it was not on the eligibility list.
Nevertheless, Chief Lending Officer Luke Colley said the bank is confident it will be able to help small business clients once the program opens to all financial institutions.
Last year, Generations issued 433 Paycheck Protection Program loans for $28.3 million. Colley projects volume won't be as large this time.
"I don't think we'll have the same run as we did last year," he said. "We won't have near the same volume we had before. But what I expect we will see is that the businesses that are most in need will apply this time around."
In 2020, Arkansas banks made 43,669 Paycheck Protection Program loan requests valued at $3.3 billion.