As COVID-19 rages throughout the world, our executive and legislative branches are working together (as best as they can, given the toxic environment in D.C.) to provide relief for American businesses. One of the elements of the recently passed $2 trillion relief package is a forgivable loan for small businesses. Called the Paycheck Protection Program (PPP), it is designed to assist the millions of companies with fewer than 500 employees through these difficult times. The fact is that many businesses have shuttered their operations altogether to meet the requirements for “Shelter-in-Place” rules that are necessary to slow the advance of the virus. These are crucial SMBs, the very lifeblood of the U.S. economy, and it is crucial that they remain viable for the moment things “return to normal.”
The PPP loans are administered by the Small Business Administration (SBA). Companies with up to 500 employees will be eligible to apply for loans of up to $10 million with a 1% interest rate. If the money is used to pay employees instead of terminating or furloughing them, then the loan is forgivable. This is an important program; however, as you can imagine with any government program, much less one that was thrown together in lighting speed, there have been some bumps in the road. Banks have been overwhelmed with applications for these loans. There also has been some confusion over instructions from the SBA. I think this is to be expected—again, this all happened in just a few days—so there will be some rough edges to smooth out. But the biggest problem for many small businesses has been their inability to access these loans at all—due to the fact that they don’t have a primary banking relationship.
It’s a fact that many small businesses do not have a bank account in the traditional sense. Younger Gen X’s, Millennials and Gen Z’s don’t have a very high opinion of banks in general, and third party fintechs like Square, PayPal and Venmo have done a good job of attracting SMBs to use their services instead. Setting aside the idea that banks need to have attractive products and services to compete effectively with fintechs, the current pandemic highlights a major problem with using 3rd party financial services to conduct business. Because if you don’t have an account with a bank, it is likely you will not get access to the SBA’s PPP money.
I am on the board of a fintech based in Atlanta, and they are the perfect example of a company that could use the PPP funds in these difficult times. So, I called up an old friend who is a senior executive at an Atlanta area bank that focuses on high-tech, payments-oriented companies. I was “networking” to get access to PPP funds for my company. But my friend apologetically explained that they were having to focus all their attention and energy on their existing customers, and they were not accepting any non-customer SBA applications. This makes sense for two reasons: (1) Their existing customers SHOULD have priority; (2) The very nature of these loans make them extremely nonprofitable for the FIs, so they would not want to take on any more loans than required. Banks are assisting customers as a part of the national recovery effort at a very difficult time, but if a local company is looking for help from the bank, it is likely they will find no assistance.
My point is businesses can look at a service like Square and determine that it is all they need to conduct business, but they are not looking at the big picture. Sure, opening a bank account can be looked at as a “hassle.” Sure, some SMBs might balk at “paying fees” for deposit accounts. And I agree that most community banks have not kept pace with the array of services that fintechs can offer. But when there is a problem—when you have a disaster, when you need to meet with someone who is advocating for you, when you need to extend credit or access funds such as the PPP—you need a banker.
Full disclosure, I own a small artisan coffee roasting business and we use Square. I cannot get anything close to the services we use from Square from my local bank. But I run all my Square transactions through my local bank and have an established line of credit. That way, if needed, I can call my banker and discuss an SBA loan. I know I will get expert information and all the assistance I need because I have cultivated this relationship specifically to address what happens when things go bad. Hopefully, you have a banking relationship and are using those resources to get through this mess. But if not, once all of this passes, I trust you will consider opening an account and establishing a personal relationship for all the benefits it will provide you, now and into the future.