Prioritize community banks in next small-business rescue plan
Community bankers have been stepping up with the government’s Paycheck Protection Program because they want to do everything possible to support local jobs and the nation’s economy.
Furthermore, every community banker across this nation wants to participate fully in the program to help create hope for customers and communities, where there is continued challenge in navigating the coronavirus pandemic.
The bipartisan Small Business Administration program that funneled nearly $350 billion in loans to the nation's small businesses had great intentions. However, the funds were depleted in less than two weeks.
There are too many small businesses, particularly the smallest businesses and sole proprietors, still awaiting needed relief. While policymakers work to extend a new round of funding for the program, there is still time to update it to redress challenges that limited the flow of loans in the first round.
As recently pointed out in a virtual White House meeting with President Trump, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, the program can only reach every corner of the country if 100% of community banks can fully participate.
Congress is working to approve an additional $310 billion in the PPP, but policymakers should mobilize every available resource to get community bankers the funding they need. Timing is critical.
The SBA, which approved roughly $28 billion in loans during the 2019 fiscal year, was tasked with distributing 12 times as much funding in a matter of days. This clearly strained the agency's manpower and infrastructure.
Next, policymakers should allocate a quarter of existing and future program funds for community banks. Community banks with less than $50 billion in assets comprise 99% of all banks and are the only ones with a banking presence in more than 35% of U.S. counties.
This is particularly true for rural areas and underserved urban neighborhoods without branches of the largest financial institutions.
With community banks holding roughly 27% of banking industry assets, dedicating 25% of the next round of funding to them would ensure a proportionate federal response that can reach every U.S. community. Allowing program funds to be used disproportionately by the largest banks would do a disservice to small businesses in underserved areas.
The final step in ensuring this aid works for small businesses is a more ambitious supporting role for the Federal Reserve.
The Fed recently launched a liquidity facility that extends credit to financial institutions participating in the small-business program backed by program loans, but it should go even further. The Fed should also provide funding advances for loans to be issued under the program to free up funds at originating banks.
While all banks want to participate in this program to meet the demand of small businesses pleading for help in this crisis, institutions are restricted by the capacity of their balance sheets. Fed advances would ensure a lack of liquidity is not an obstacle for small businesses and their employees.
Policymakers should ensure the PPP is structured to maximize its effectiveness. This means ensuring every community bank in the country can fully participate.
Bankers want to work together to make that goal a reality. Because now more than ever, the nation’s small businesses are counting on their community banks to be part of the solution.
Community banks are always ready and willing to rise to the challenge. The Treasury Department and SBA should work with Congress to add these needed changes to fully unleash the incredible economic impact that the nation’s community banks can provide to help make the solution a reality during a time when it’s sorely needed.