Alaskan banks and credit unions struggle with ability to process loans for the Paycheck Protection Program

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program (PPP) is aimed at helping small businesses keep workers employed during the COVID-19 pandemic. A low rate loan program that could even be forgiven if employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

Qualifying businesses could start applying for the PPP at qualified lenders across the U.S. beginning on Friday April 3 through June 30, 2020 — or until all available funds have been dispersed.

Those funds were exhausted as of Thursday, April 16, but additional funds are expected to be on the way, once Congress agrees upon terms. Anchorage Mayor Ethan Berkowitz expressed confidence those refreshed resources would become available shortly at his regular Covid-19 Community Update on Friday.

“In Alaska we have had about 2,700 loans approved for $600 million. That’s 37 percent of the payroll in the state and that puts us in the bottom third of states getting recovery money,” Berkowitz said. “Be aware that the SBA (Small Business Administration) has run out of funds at this point but banks are continuing to process loans in expectation that Congress will come to an agreement to pass the next stimulus package. I have a high degree of confidence that will happen. (Congress is) just going through the natural wrangling.”

While struggling Alaskan businesses should have had peace of mind that relief is on the way, there is growing concern that many will be left without resources. Some lending institutions stopped taking new loan applications within one day of the program opening due to the overwhelming response. Those who were able to accommodate new loan applications recognized that their ability to do so was changing daily.

On April 8,Northrim Bank shared the following statement on their website:

“In order to provide Superior Customer First Service to the extremely high number of PPP applicants, we are temporarily suspending the processing of new applications. Please check our website for regular updates. We understand the critical nature of these loan requests and will do our best to meet your needs. We appreciate your patience.”

Looking to the largest Alaskan owned and operated financial institution since 1922, First National Bank of Alaska reported on April 8 they were working overtime to ensure Alaskans had the support they needed.

“We are Alaska’s largest community bank. We’re probably more ready than anyone else as far as being able to fund these loans,” said Chad Steadman, Senior Vice President and Corporate Lending Director for FNBA. “We are making our process streamlined, and the government is trying to make it as simple as they can so it is faster than processing a regular loan.”

FNBA is a long-time preferred lending partner with the SBA, an expert in providing loans through the 504 program to assist businesses with purchasing their locations – earning them the title of SBA 504 lender of the year. Even with that track record, Steadman admits navigating the SBA process for the PPP poses its own set of unique challenges.

“There’s a lot of things that are new; once we build the system we’ll be able to pump a lot of loans through very quickly. Right now we are getting through all the kinks and figuring out what the SBA wants the rules and guidelines of everything and then things will move through very smoothly,” said Steadman. “Best way to describe it, it’s like playing basketball. We know where the free throw line is, we know where the out of line boundaries are, we know where the hoop is, we just don’t have the rule book.”

Due to confidentiality reasons Steadman was not authorized to share the exact amount of the incoming applications to FNBA, but confirmed it is substantial. Loan officers who typically deal with an average of 5 to 10 loans per month are now tasked with processing 40 to 80 with each loan averaging between $250,000-300,000 per business, he said.

“We’re overwhelmed but we’re holding up,” said Steadman. “People are pulling in longer shifts than normal, they’re coming out and just doing amazing work. They’re seeing it more than just a job but as an opportunity to serve at a higher level because we understand that these businesses are hurting. We understand that they are in need, so we look at this as our opportunity to help them in this crisis situation.”

Steadman encourages local businesses to remain patient and look to their preferred lender for resources and support.

“We encourage all local individuals to go to their local bank because they’ll be familiar with their application and be able to process it the best for them,” said Steadman.

The U.S. Department of the Treasury is funding a total of $350 billion to support businesses, but already there is a push to request more.

“Last I talked with the local SBA division here they were already at 100 billion across the U.S.,” said Steadman. “So there’s still some capacity there but it’s definitely being used quickly.”

The SBA pays lending institutions a small fee for processing loans and borrowers have only a 1% interest rate on repayments and do not need to guarantee their loans with collateral. While this speeds up the process, lending institutions are faced with dispersing funds quickly while being required to pay a service fee back to SBA, leaving them only a 0.5% margin on each loan.

“There is an opportunity for us to make some money, however it’s not as significant as some of the other loans that we do but we do receive compensation for it,” Steadman said.

One of the ways that FNBA is streamlining the process is by connecting businesses to the information as quickly as possible — including links to fact sheets and application checklists. Even with heavy call volumes, FNBA provides a way for individuals to receive immediate information and connects them with available loan officers.

“We’ve set up a whole system, to where someone can call in and give us their name and information, we’ll immediately send them a link to this page, we’ll also put them in touch with somebody who has the ability to take their application,” said Steadman. “Where we’ve heard a lot of banks are having a hard time answering the phone we’re trying to make it to where we get in touch with you, same day, get you the information you need and get you off and running.”