Community banks benefit from willingness to approve PPP loans for small business owners

BY NANCY DAHLBERG

In South Florida as well as around the nation, small business owners applying for the Paycheck Protection Program often struck out with big lenders — even when they had been loyal customers. They had better luck with smaller, community banks that were less deluged with applications and nimbler.

According to the Small Business Administration, about 52% of the loans and 44% of the PPP program dollars were approved by local community banks and specialty lenders. That’s huge considering that banks with less than $10 billion of assets account for just 14% of the industry total of deposits, according to the Federal Deposit Insurance Corp.

A graduate of Miami-Dade College, Florida International University and the St. Thomas University, Clifton Vaughn is a Florida CPA. He has more than 40 years of business experience working in South Florida as an auditor, financial controller, financial planner and small business owner and operator. During his years as a business professional, he spent time in the airline industry, construction, consulting with small business owners, and teaching business and accounting courses at Johnson & Wales and St. Thomas universities. Vaughn has served on the boards of directors of the Miami-Dade Chamber of Commerce and the Miami-Dade Partnership for the Homeless.

“With closer proximity to the market place, stronger ties to the community and individual business owners, small community banks were better able to accommodate the volume of local small business PPP applications,” said Clifton Vaughn, business consultant with the Florida Small Business Development Center at Indian River State College. “The small institutions were surprisingly effective and efficient in acquiring PPP dollars for our region’s small businesses.”

In pre-COVID-19 times, the pain of changing banks — transferring balances and syncing incoming and outgoing payments to new account numbers — was a hurdle that stopped many from making the switch. But community banks nationwide are reporting that small businesses, who felt unserved by their banks, are showing their displeasure by moving their money elsewhere or at least opening an additional account as a thank you for PPP service.

And survey numbers show the trend, too. Of businesses that secured PPP funding, about 28% received their loan from a lender with whom they had no prior relationship or a bank that wasn’t their primary one, according to a July survey of 931 firms conducted by Barlow Research Associates. About 44% of those borrowers said they would move at least some of their accounts and loans to the bank that came through for them during PPP, the survey found.

EXPECT LANGUAGE CHANGES
Chalk this up to yet another change coming for small business thanks to the COVID-19 pandemic.

The language in retail and restaurant leases is changing as a result of the pandemic.

New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic. The language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.

Now experts are saying new clauses will include language stating that should there be any government-mandated business closures — whether by city, county, state or federal agencies — the tenant would be protected with partial rent abatement. That also protects the landlord, as these agreements often add that the tenant would need to pay a minimum rent to cover costs like property taxes and maintenance, he said.

Other experts have been seeing clauses that outline what spaces are available for extra seating, fulfilling curbside and/or delivery orders should government restrictions be enacted again.

“As innovative as restaurants had to become during this pandemic, it is no surprise that landlords are reacting with new and innovative language in commercial leases,” Vaughn said.

LAWSUITS STACK UP
As more small businesses grapple with the economic impacts of the pandemic, more than 100 South Florida businesses have insurance cases pending in state circuit and federal courts, according to a database of COVID-19-related complaints maintained by the law firm Hunton Andrews Kurth. Among them are well-known restaurants and attractions as well as medical practices and manufacturers.

“Almost all of the insurance cases are business interruption,” Walter Andrews, partner and head of the insurance practice group at Hunton Andrews Kurth’s Miami office, told the South Florida Business Journal. “Businesses have lost so much money because of shutdown orders so I expect we’ll keep seeing more of this litigation.”

Andrews said insurers are spinning a false narrative when they argue they don’t cover pandemics. He said the floodgates should open in the next few months because he knows his firm and several other big firms plan to file a number of cases in the coming weeks.

All business interruption insurance is not alike, according to Mark Friedlander, spokesman for the Insurance Information Institute. He told the business journal that some business interruption claims in litigation are not legitimate because property insurance policies don’t necessarily list every exclusion. Instead of looking at whether viruses are excluded by their insurance policies, business owners should take note of which events are covered, he added.

“Unless viruses, bacteria and contamination issues are specifically stated as covered, you don’t have the coverage,” Friedlander said.

Courts nationwide so far have sided mostly with insurers. But thousands of cases, including the more than 100 in South Florida, are pending. Adding insult to injury, small businesses are reporting that their insurance premiums are increasing upon renewal.

This article is provided by the Florida SBDC @ IRSC, the Small Business Development Center within Indian River State College’s School of Business. The center’s team of business experts works one-on-one with hundreds of entrepreneurs and business owners each year by providing confidential, no-cost consulting. The center’s mission is to help Treasure Coast businesses grow and succeed.

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