In the News

Gears turn to infuse cash into state's small businesses

Arkansas Democrat Gazette
04/05/2020

Small businesses in Arkansas now have access to loans of as much as $10 million to help them stay afloat and keep workers employed during the coronavirus pandemic.

Repayment is completely forgiven — both principal and interest — for the portion of the loan used to pay employees and cover other essential business expenses such as mortgages, rent and utilities for eight weeks. Nonprofit organizations are eligible for funding under the same terms.

Overall, Congress is making available $349 billion in guaranteed loans through the CARES Act that was signed into law March 27.

The loan initiative authorizes the Small Business Administration to mobilize local financial institutions to make loans to businesses weakened by the pandemic. Federal aid also can flow through financial technology lenders such as Kabbage and Square Inc.

On Friday, the loan application process opened across the nation, allowing the 249,000 small businesses in Arkansas to put in a request for federal support. Each business is eligible for up to $10 million in loans, and can receive an immediate infusion of $10,000 within three days of approval. Nationally, reports showed that $3.2 billion in loans had been approved for more than 10,000 small businesses by the end of the day.

“We’re working to get capital in the hands of businesses as quickly as possible,” said Edward Haddock, executive director of the Small Business Administration’s Arkansas office. “This authorization puts the banks at the forefront of the effort to put liquidity in the hands of businesses.”

Even so, lenders Friday were waiting for final rules and guidelines detailing specifics of the loan program. It could be several more weeks before federal funds reach local businesses.

“This is going to be a constantly changing environment over the next few weeks,” Haddock said. “The lending community is waiting for final guidance so they can make sure they safely loan money and meet the loan standards.”

The anxious business environment was summed up by Gov. Asa Hutchinson: “Everybody’s frustrated right now,” he said Friday, noting that small businesses need cash infusions, while bankers stand ready to make loans once the regulations are in place.

The Small Business Administration is cutting through red tape and introducing the most relaxed lending standards in its history. Traditional underwriting practices that require a personal guarantee or collateral are being waived and there are no agency fees.

“This is really unprecedented in our history,” Haddock said.

Arkansas already is making bridge loans to small businesses suffering economic distress caused by covid-19.

The Arkansas Economic Development Commission has approved 80 small-business loans valued at about $1.7 million in 36 counties through the end of last week. Loans are up to $25,000 and are intended to provide critical operating capital until federal funds start flowing. Another $2 million in bridge loans could be approved this week, officials said.

“Hopefully, this gets small businesses through the pandemic or helps them bridge and get to an SBA loan,” said Arkansas Commerce Secretary Mike Preston. “We’re trying to help small businesses in all sectors. This is a more open process than what we have traditionally done with economic development loans.”

U.S. Rep. French Hill, a career Arkansas banker, calls the CARES Act “an unprecedented response to the sharpest economic correction in American history.”

Congress’ goal was to provide guaranteed loans through local banks so small businesses can keep workers employed. “The idea was to deliver economic relief quickly and in a streamlined way through community banks to help small businesses keep employees and maintain their businesses,” Hill said.

Small businesses need an immediate shot in the arm to maintain operations and keep employees on the payroll.

“Accessing capital funding quickly is vital to sustaining our small businesses,” said Laura Fine, state director of the Arkansas Small Business and Technology Development Center. “The [federal] program takes care of immediate needs related to payroll and operating expenses.”

State bankers say they are moving with a sense of urgency to help rescue businesses that are treading water.

“I’ve never seen anything like this,” said Davy Carter, regional president for Centennial Bank based in Jonesboro.

Carter has 20 years of banking experience and he said the calls from customers have been overwhelming in the past few weeks.

“There’s a real need for operating capital out there and it’s across all business sectors and includes our entire footprint, from Key West to Jonesboro,” Carter said. The bank operates in Arkansas, Alabama, Florida and New York City.

In Arkansas, the $25,000 bridge loans carry zero interest and waive payments for a year. Similar to the federal payroll program, state loans have a job-retention requirement.

“We want these businesses to have the capital they need to keep people working,” Preston said. “Our goal was to make sure these businesses have capital available immediately.”

Joblessness rates continue to climb in Arkansas and across the nation. In the past two weeks, more than 10 million Americans have filed for unemployment benefits — trampling previous record highs — and more than 36,000 Arkansans have filed for support.

On Friday, the U.S. Department of Labor reported that employers cut 701,000 jobs across the nation because of disruptions caused by the pandemic.

The national unemployment rate has jumped to 4.4% from a 50-year low of 3.5%. Economists are predicting U.S. unemployment could reach 15% this year. Arkansas economist Michael Pakko has said the state rate should peak at 8.7%, well above the 3.5% of recent months.

Joblessness claims are likely to continue climbing. “There will probably be more filed in the next two weeks than have been filed in the past two weeks,” Gov. Hutchinson said last week.

To keep Arkansans working, bankers and economic development officials are collaborating on efforts to distribute the $349 billion in federal aid.

The new Paycheck Protection Program that is part of the stimulus package has two primary standards: A business had to be in operation before Feb. 15 and it must have employees — even if it’s a sole proprietorship. The program essentially finances eight weeks of payroll for small businesses to carry them through June 30.

“If they can demonstrate that they have retained employees, then that [payroll] portion of the loan would be deemed forgivable,” Hill said. “It would essentially convert from a loan to a grant.”

The federal government will make up payments that are forgiven so that local banks do not sustain losses by extending the loans.

Paycheck protection “will quickly provide Arkansas small businesses with the capital and security they need to retain employees and continue serving our local communities,” said Justin Crossie, Small Business Administration regional administrator for Arkansas and surrounding states. “While the impact of covid-19 is being felt nationwide, we are committed to supporting Arkansas entrepreneurs and reviving the state’s economic engine.”

Current forecasts suggest economic growth will resume in the fourth quarter, and federal loans should provide life support to small businesses until then, said Pakko, an economist at the Arkansas Economic Development Institute at UALR.

“At the very least, the program will give many small businesses some breathing room to consider their long- term plans,” Pakko said. “The economic outlook is very uncertain right now, and this program should provide some temporary stability.”

Under the paycheck program guidelines, all loan payments will be deferred for six months. Interest rates are projected to be 0.05%.

Those options are attractive to Arkansas’ small businesses.

“I am glad that there is so much available to small businesses, and we are looking at the different options of what is best not only for us but what is best for our employees,” said Don Dugan, who operates several Little Rock businesses, including Dugan’s Pub in the River Market and South on Main on the edge of downtown.

A neighboring business, Community Bakery, will seek financial aid through the Small Business Administration, said Chief Financial Officer Juli Brandenberger.

“The greatest challenge right now is keeping our people healthy, working and paid,” Brandenberger said. “While our community has rallied with support, we aren’t even covering our direct costs right now. The SBA loan will allow us to continue to keep our [Community Bakery] family working full time and continue serving our community.”

To help workers, the company is temporarily paying the employee portion of health and dental insurance to give them additional income each week, Brandenberger said.

Improving access to capital will help small businesses and their employees, said Jay Chesshir, president and CEO of the Little Rock Regional Chamber of Commerce.

“This economic lifeline is crucial for small businesses to survive in this unprecedented crisis,” Chesshir said. “It also is key to small-business employees who desperately need their job and the benefits provided for their family’s stability.”