Local lenders make the difference in Payroll Protection Program
“Have you heard that (insert name of local business) is closing?”
This is an all too common refrain in 2020, repeated as we’ve watched restaurants, fitness studios, tour companies, retailers, and more, shut their doors for good. Researchers estimate that between early March and early May 110,000 small businesses closed across the country. In Alaska, the number of open small businesses decreased by 29 percent and consumer spending is down by nearly 12 percent in comparison to January 2020 numbers.
Considering that the median business has more than $10,000 in monthly expenses and less than one month of cash on hand, it’s no surprise that many have been unable to stay afloat during the pandemic.
“We have months of economic pain still to come,” says Nolan Klouda, Executive Director for the University of Alaska Center for Economic Development.
Paycheck Protection Program: $669 billion for small businesses nationwide
The economy would probably be faring far worse if the federal government hadn’t acted quickly and authorized the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act on March 27.
The CARES Act is the largest economic stimulus plan in U.S. history, and includes the Paycheck Protection Program, which provided a total of $669 billion in forgivable loans for small businesses. The program was so popular the initial $349 billion ran out in two weeks, necessitating the authorization of a second phase. Slated to close on June 30 with $130 billion unspent, the PPP was recently extended to Aug. 8.
Although highly utilized, PPP presented a host of challenges for business owners, ranging from changing guidelines and concerns that loans would not be forgiven as promised, to establishing eligibility and finding a financial institution to apply through. In the future, business owners will need to calculate the forgivable amount of their loan and track allowable expenses to ensure program compliance, which may be difficult for some.
Lenders also experienced challenges, including restrictions on the asset size of eligible lenders, unclear guidelines, and using a federal website not built to withstand the program’s heavy traffic. Going forward, lenders will need to manage servicing the unforgiven portion of loans, identify how to categorize the debt, and potentially deal with audits.
Did PPP work? And did Alaska get a fair share?
The Small Business Administration, which manages the PPP program, recently released detailed data regarding businesses nationwide that participated in the program.
“The first question everyone wants answered is ‘Did it work?’ And the second question is ‘Did Alaska get its fair share?’” Klouda said. “Although it might take years to find out how effective PPP has been, it’s clear from reviewing the data that the program was used extensively in Alaska, by employers from just about every industry and region in the state.”
When Klouda analyzed the data, he discovered the following:
- At 53 percent, Alaska entities received a smaller number of loans compared to the total number of small businesses and nonprofits, but a higher average loan amount of $112,000, versus $107,000 nationwide.
- Employers in the state received $1,692 per capita, which is slightly better than the national figure of $1,594.
- Urban population centers like Anchorage, Fairbanks and Juneau received a greater proportion of PPP loans relative to the number of businesses than less populated rural areas.
For the most part, Klouda’s findings about PPP in Alaska matched his expectations. One in particular though, surprised him: the top five PPP lenders were largely made up of local institutions. Wells Fargo was the only national bank ranked among the top five; the other four — Northrim Bank, First National Bank Alaska, Alaska USA Federal Credit Union, and First Bank — are all smaller in-state lenders.
Alaska’s leading PPP lender
Northrim alone was responsible for approximately one in four loans in the state, which translated to nearly 2,600 new business loans between April and June. For reference, there are only about 20,000 businesses and nonprofits with employees in the whole state.
“We made a decision to assist as many businesses in Alaska as possible, regardless of whether they were an existing Northrim customer because as a community bank, we recognize the importance all our small businesses have within our community,” said Northrim Executive Vice President and Chief Lending Officer Mike Huston.
To manage the high volume of applications, Northrim created a loan processing assembly line and brought staff from departments like IT, Accounting, Marketing, and others into the lending process.
“There were times when work was being done every minute of the day,” said Huston. “People stayed up late, got up early, and worked during the weekends. A significant portion of our staff were working remotely, and knowing that we were making a difference for our communities made us feel connected during this challenging time.”
Although flexibility isn’t often a word associated with banks, Huston says it’s something Northrim prides itself on.
“One of our takeaways from this is that change is constant, and it’s coming at us quicker than ever. Tomorrow is not going to be what we expect and we have to be ready to adapt.”
Disruption creates opportunity, and businesses that can pivot or identify new consumer needs can be successful despite a challenging economy, something Northrim knows well.
The bank opened its doors in 1990 on the heels of a devastating recession, and has grown significantly since its origin in two trailers in a parking lot. Despite dire forecasts about Alaska's economy, Huston remains optimistic.
“We’re continuing to invest, Huston said. “We opened a loan production office in Kodiak in early March, and are planning to open a second community branch in Fairbanks this winter. We are committed to powering the businesses that power Alaska.”
Gretchen Fauske is a marketing-minded economic developer fueled by a passion for innovation and entrepreneurship. She is the associate director for the University of Alaska Center for Economic Development, Board President for Launch Alaska, Vice Chair for Anchorage Downtown Partnership, and a Gallup-certified CliftonStrengths coach.