PROSPER OR PERISH #2. Click here to read past issues.

Here is Steve’s commentary about the Coronavirus crisis on the week of April 13th, 2020 and why the banks stopped funds and how the SBA was not prepared to handle the “financial flood” that ensued.

1. The initial announcement of COVID-19 relief included: 

• 7(a) paycheck protection program.
• 7(b) economic injury disaster loans.

Banks and SBA are unprepared to respond.  

2. Banks had normal SBA department staffed to handle “normal” volumes 

1. Long application timetables.
2. Significant documentation needed.
3. Appraisals of collateral and other assets needed.
4. Personal credit checks for guarantees.
5. Underwriting by bank reviewed and approved by SBA. 

It was a long process handled by small volume capacity. 

3. The bank’s reaction to the flood of applications 

1. Shut off direct personal (phone) access to lenders.
2. Screened apps with online registration.
3. Allocated amount authorized to lend in total.
4. Restricted loans to current customers.
5. Began with apps and guidelines changing daily.
6. Began submitting loans Monday of this week.

Access to Banks became Key. Restrictions on who could apply became an issue quickly.

4. SBA was unprepared for executing the program 

1. Existing staffing unprepared and inadequate to handle the workload.
2. Did not have final forms, requirements, or FAQ’s till this week. 
3. Were allocated as a budget increase $685 million by Congress to handle program – how to spend it – hire or outsource.
4. It did not have the processes to protect banks who were submitting loans. 

Signals and response from SBA were of a Bureaucracy struggling to fulfil its Role 

5. Banks began receiving approvals for the early apps they received. 

• No progress on the process for loan funding, bank certifications, or funding protection existed for the banks.
• Banks were not going to fund without certainty that: 
  • Their payments to customers for these loans were protected from default. 
  • The verification process for the forgiveness of loans was clear and specific. 

c) Therefore – banks froze funding.

6. Last week – April 9^th – Congress addressed the funding-by-banks issue 

1. Funding mechanisms to protect the banks was put in place.
   • They authorized 2.3 million in new liquidity to help business.
   • They provided Paycheck Protection Program (PPP) liquidity facility to banks – taking the form of 100% value as collateral. 
   • Banks now have a path for the distribution of funds. 

Will we see funding start and accelerate this week? Or is the Bureaucracy still Stuck in the How to Mode? 

We will watch and keep you posted! 

About The Author

Stephen Gross, CPA, CGMA, CVA, CFE — EVP of Hegemon Holdings and Co-Founder of Trusted CFO Solutions — is a big picture thinker and connector, with 40 years of rich and diverse experience in the C.P.A., business consulting, and venture capital worlds. Steve was an early adopter and evangelist of cloud-based accounting, as well as the concept of a virtual C.F.O. or Controller as a method of outsourcing the position in small businesses and startups. Learn More About Steve…