In the days after the federal Paycheck Protection Program was rolled out five months ago, huge, national banks across the country were accused of fumbling the program by prioritizing loans to big business and leaving desperate small employers high and dry.
But in Maine, community banks went into overdrive to process loans designed to help struggling Main Street businesses pay employees and keep the lights on. Within months, billions of dollars were approved for tens of thousands of loans, helping to stabilize an economy in free-fall.
“I think everyone realized that the goal was to get as many of those loans approved and in the system as quickly as possible,” said Kim Donnelly, director of business banking at Gorham Savings Bank.
Before the loan program started in early April, the bank shifted its staff and resources almost entirely to the emergency program. Employees were trained, put on phones to answer questions and worked overtime to process loans, Donnelly said. Those preparations likely would have been challenging for a larger company.
“If we weren’t a smaller bank, I think it would have been more difficult to bring in more people and cross-train and literally within a couple days be up and running,” Donnelly said. “I’m sure it was the same way with many other banks, working over the weekend, coming in day after day. I think we all felt good about what we were doing, helping business and the community.”
More than 46 percent of Paycheck Protection Program loans over $150,000 were made by just six locally-owned banks, according to data from the U.S. Small Business Administration. Seven local banks made about 50 percent of all the loans for $150,000 or less.
National banks were far less active in PPP lending in Maine. The top 10 national PPP lenders, including TD Bank, KeyBank, Bank of America and Chase Bank, provided just 13 percent of loans under $150,000 and about 17 percent of larger loans in the state.
Luann Cameron, who owns a small insurance agency in Standish, feared for her business’s survival as the pandemic hit Maine. She reached out to Gorham Savings Bank for help getting an emergency loan and quickly received enough to pay four employees and make it through the worst days this spring. Her business has now stabilized and started to grow.
Colleagues who went with big national banks dealt with long wait times, poor communication and frustration as they tried to apply for loans, Cameron said.
“The difference with the hand holding I got compared to what my peers experienced with bigger banks is night and day,” Cameron said.
Maine’s experience mirrored parts of the country where community banks proved they had the flexibility, local connections and customer service to handle an unprecedented relief program. Maine ranked seventh in the country for PPP loans issued per capita, according to one analysis.
It is no surprise that small banks handled the program better than large ones, said Paul Merski, executive vice president for Congressional relations and strategy at Independent Community Bankers of America, a national trade group. Small banks were able to quickly move resources and staff, set up application programs and directly help businesses answer questions and apply for loans.
But there was a bigger motive for small banks to move quickly, Merski said – local banks are the principal commercial lenders for small employers.
“There is a symbiotic relationship in supporting the local market and the viability of your community banks,” Merski said. “Community banks stick with local businesses in good times and bad because their survival is intertwined.”
To date, about 28,300 loans worth more than $2.2 billion have been made to Maine employers. The vast majority of loans are under $150,000. Some businesses have criticized the program for being difficult to use, but it may have supported more than 200,000 Maine jobs. The lasting impact is uncertain as Maine’s local economies struggle as a result of the pandemic.
The loans may be forgiven if businesses meet certain spending and employment thresholds. Unforgiven loan balances may be repaid over up to five years at 1 percent interest.
Bangor Savings Bank was the program’s top lender in Maine, processing about 15 percent of loans above $150,000 and the same proportion of smaller loans. As the program geared up in late March, the bank shifted resources and assigned 200 staff members to deliver the maximum number of loans to current and new clients.
“We made the decision very early on that participating early and fully was the right thing to do for our small businesses,” said Kate Rush, director of community relations at Bangor Savings. “Doing anything we can to help local businesses be healthy and thrive is ultimately good for the banking community. I do think we are fortunate to be in an area where community banks are a significant player.”
Across the country, states with ingrained community banks appear to have done a better job at accessing PPP loans than places where banking has been consolidated to a small number of huge financial institutions.
Maine ranked seventh in the country for relief loans per 100,000 population, just below Midwest states such as Nebraska and North Dakota that have even stronger community banking networks, according to a June report from the Institute for Local Self Reliance, an advocacy group with offices in Portland.
While the biggest U.S. banks have a far higher market share than community banks, they do far less small business lending, said Stacy Mitchell, the institute’s co-director.
“There is an inverse relationship between bank size and business lending,” Mitchell said, adding that community banks also know local markets and have personal connections to create successful loan terms.
When emergency loans were rolled out, “in states that had community banks, there was a natural impulse to get (money) into the hands of small businesses, compared to places where they had trouble getting any support at all,” Mitchell said.
PPP loans were made using banks’ own money, which will be repaid by the borrower, or the federal government if the loan is forgiven.
In exchange for handling the loans, banks earn a percentage in fees when they are fully disbursed, according to the SBA. Maine lenders stand to earn between $39 million and $42 million in total fees, according to a Portland Press Herald analysis of program data.
Those earnings may help offset loan payments banks deferred to help people make ends meet at the start of the pandemic. It may also help cover the cost to handle PPP loans that are not forgiven. The interest rate on those loans is far less than for a conventional loan.
“If you went in and said, ‘Hey, I want a million dollar mortgage for five years at 1 percent,’ they would laugh you out of the bank,” said Merski, from the independent bankers association. “I think Congress was trying to get away with a very low interest rate because they assumed the overwhelming majority would be turned into grants.”
Camden National Bank, which processed the second-highest number of loans in the state, is due to receive about $8 million in fees, said Chief Experience and Marketing Officer Renee Smyth. That should help soften revenue losses the bank expects from deferred loan payments. For months, Camden National has deferred payments on more than 1,760 loans representing $546 million, she said.
However, fee earnings are secondary to the benefit to Maine’s economy and the community goodwill local banks stood to make by prioritizing the loan program, Smyth said.
“The more we could do to help the businesses in Maine, the better the economics of the state would be,” she said. “It is in our own interest to help every company we can.”