Frustrated by PPP, many small businesses are ditching their banks
Scott Burr knew his staffing business for dental practices and government agencies, Team Placement Services in Alexandria, Va., was in trouble when the coronavirus pandemic hit.
Burr joined the rush for Paycheck Protection Program assistance through his bank, the $506 billion-asset Truist Financial, when the loans became available in early April. But his calls went unreturned.
A salesperson from the $1.5 billion-asset Capital Bank in Rockville, Md., reached out to Burr and offered to usher him through the PPP process instead. Soon, he had all the paperwork in and secured a $911,000 loan for his staffing company and a $1.2 million loan for his separate painting business. He decided to switch his commercial accounts to Capital Bank after it extended him an additional $1 million credit line.
"I would love for it to be that old style where you stay with your old bank and your old banker, but that’s gone away,” Burr said in an interview. “They're just another vendor now."
Burr is not alone. Frustrated with the bottleneck for assistance, more small-business owners are considering switching their banks, according to Greenwich Associates, which provides data to the financial services industry. And more are expected to leave if the forgiveness process proves as difficult as applying for the loans in the first place.
Greenwich has been tracking the “churn” of small-business accounts from one bank to another. Typically, about 10% of the businesses it monitors are out searching for a new bank. Chris McDonnell, managing director at Greenwich, said that rate is three times what it normally is, and he attributes the spike primarily to customers’ soured feelings over their PPP experiences.
“The amount of emotion and anxiety running through the minds and nervous systems of these business owners is magnified beyond normal levels,” McDonnell said. “People were really irate about their banks prioritizing a bigger more profitable relationship over them.”
A survey of small-business owners conducted by Greenwich in May showed that 29% of those who responded said their opinion of their bank had worsened because of PPP. Only 13% said their view had improved after going through the application process.
McDonnell said as questions swirl over which loans will be forgiven and when, banks are in danger of losing even more accounts if frustrations mount.The churn rate, he estimated, could climb to six times normal levels if more problems surface during that stage in the PPP process.
“It remains to be seen what the forgiveness will entail,” McDonnell said. “There could be another wave, a slightly different wave.”
Dunn said he became impatient with his previous bank, Truist, when dentist offices began closing en masse around the country to ward off the spread of the virus, and government agencies began to delay reimbursements for pay he had already given to employees he’d staffed for them. Without PPP loans, he would have had to lay off all of his employees, he said.
A spokesman for Truist said in a statement that the Charlotte, N.C., banking company has helped more than 74,000 businesses secure $12.8 billion in funding through PPP loans to date and that the bank has seen positive growth in the number of new commercial accounts from the beginning of the year through May.
“Throughout the PPP process, we’ve been focused on making this critical program available to our business and nonprofit clients, and have mobilized thousands of teammates to meet our clients’ urgent needs,” the spokesman said.
Sen. Elizabeth Warren, D-Mass., sent a June 9 letter to the CEOs of Bank of America and the $74.5 billion-asset Santander Bank in Boston asking for details about the number of applications they received for PPP loans and internal instructions for handling them after small-business owners complained about the process. Warren acknowledged that guidance about how to implement the program was slow to come out from the Treasury Department and the Small Business Administration, but she brought up “sleepless nights” the banks have caused owners who were left in the dark.
“I recognize that these are issues over which your institutions have little control,” Warren wrote. “However, as the program has been rolled out over the past several weeks, it appears that your institutions also share some of the responsibility for the failures of the PPP to adequately meet the needs of all small businesses in Massachusetts.”
A BofA spokesman declined to comment on the letter but said the banking company has done more than 325,000 PPP loans so far.
A spokesperson for Santander said in a statement that the company is reviewing Warren’s letter and said all customers who expressed interest in the program were invited to apply. The company has completed $1.2 billion in funding for 10,500 customers.
“We continue to work with our customers to process open applications and also as we prepare for the forgiveness phase of the program,” the spokesperson said.
Many small-business owners are still on the fence about switching banks, which can prove to be a tangled process.
Andy Ricker, a chef in Portland, Ore., who co-owned a slate of restaurants with the celebrity chef Floyd Cardoz, said he is considering leaving JPMorgan Chase after failing to get a PPP loan during the first round of funding that began April 3; he succeeded in the second round that began in late April and is still continuing. Cardoz died in March of complications from COVID-19. Six of their Pok Pok Thai restaurants and bars in the area have been closed, Ricker said.
“We will [switch] for sure once we untangle the mess we are in from closing down six restaurants,” Ricker said in a direct message on Twitter. Ricker said thousands of businesses like his were “mired” in the process early on, but he never got an explanation for the delay from JPMorgan.
A spokesman for JPMorgan did not reply to a request for comment.
What has been a headache for some banks has been a windfall for others. Nearly half of Capital Bank’s applicants for PPP assistance were not their clients before applying, CEO Ed Barry said in an email.
Many of those businesses have indicated they plan on switching their accounts over, Barry said, which is difficult to do as businesses are just trying to stay afloat during the pandemic. This means that banks may not see the impacts of the exodus on their balance sheet until the economy gets back to normal.
The National Federation of Independent Business, which has been lobbying for more flexibility and funding through PPP is surveying small-business owners over whether they are considering switching banks.
Holly Wade, director of research and policy analysis at NFIB, said owners are generally “not inclined to switch banks when they have their [personal] banking and business operations linked and especially if they have a loan with their bank.”
Greenwich said in its survey results that small-business owners mentioned “forgiveness terms” among the grievances they had with their banks during the PPP process. Some changes were signed into law on June 5 that would give small-business owners who received a loan through the program more flexibility to qualify for forgiveness, like giving businesses 24 weeks to spend their PPP loan amounts instead of eight. The new rules also allow that 60% of the funds must go toward payrolls, instead of the previous 75% threshold, in order for a PPP loan to be forgiven.
Burr called the changes a “huge, huge deal,” specifically extending the deadline to pay employee wages to 24 weeks, since there wasn’t enough work to go around for him to make the original cutoff.
Still, there are concerns around how complicated the application process will be for forgiveness as banks will once again be the gatekeepers. The application for forgiveness is still 11 pages long, and borrowers will need to be walked through much of it. Banks are already preparing for a flood of requests.
Burr said when he took the loans out, he was counting on them being forgiven.
“If it became a loan, there’s no way,” Burr said. “It would take years and years to pay that down.”