The irony of it all!  PPP.  Paycheck Protection Program.  When I began my banking career, I quickly learned the five C’s of credit.  For banking, it was the five natural laws of risk mitigation.  Then came the five P’s – specific types of borrowers with whom you should be extremely cautious or avoid altogether.  Preachers, painters, politicians.  And, two others that were fairly obvious to me since they were illegal anyway.  PPP is the government version of selling the Nova in Mexico.  When it comes to naming programs, I don’t know why Congress can’t step over to the CIA or Pentagon and get supercool code names like Python or Piranha.  Niagara might have offered a nice image of crazy strong cash flow.  Congress just seems to like its acronyms.

Despite the irony for bankers, PPP is audacious at the macro level.  Mark Cuban opined that it was the best economic stimulus for small businesses that he has ever seen.  Yet, the WSJ reported a skittish start to the program, with many banks unprepared to launch as the terms of the program were still changing on the eve of target launch date.  According to WSJ, many community banks simply will not participate.  Embedded in all the dynamics are some interesting lessons in momentum that can be applied to any business, and probably some useful insights into the love-hate relationship between the SBA and its approved lenders.

Creating momentum for an object at a standstill requires force, or energy, from some external source.   The energy must be channeled in a specific direction, called a vector in scientific circles.  Vectors are not only directional, but also defined by a specific distance.  Momentum can be gained from one powerful push, or a series of smaller pushes.  It is a cumulative thing, but without an initial surge to create any level of movement, momentum cannot be generated.  Finally, the external stimulus must overcome the inertia, or weight, of the object and sliding friction in its path.  There is another kind of friction, static friction, that is needed to dig in and get things rolling.

My synopsis is that the coronavirus has blanketed the entire U. S. economy with a weight it has not experienced in nearly 100 years.  Entire industries have been mandated to cease business altogether.  Some have found inventive delivery options to keep doing business at SOME level.  For a significant of small businesses, business has completely stopped.  A certain percentage is unlikely to recover at all.  Keep in mind that there are between 25 million and 30 million small businesses in America.  Percentages translate into staggering real numbers.

PPP’s $349 billion stimulus is quite a jolt to get things moving again.  Beyond the financial liquidity impact of it, there is also psychic energy among Small Business owners from this level of support, after watching billions in bailouts and incentives directed to major corporations over the past several decades.  Someone in Washington cares.  Finally, banks are energized by the commitment as well.  If not by the pure messianic role they can play for small businesses with long-lasting impact, then by the lizard-brain survival mechanism in dodging an unprecedented level of charge-offs in their small business portfolios, depleting their capital and standing with regulators.  For many, it may be the difference between making it and not making it.  The energy is real and ready to uncoil.

Energy for it is not enough.  Without unified stakeholders pushing it, it is simply heat, burning into the atmosphere.  As fine as their intentions are, Congress cannot push the program into action.  The SBA cannot push the program into action.  It customarily relies on approved SBA lenders to process transactions, offering government guarantees in return.  Because we are experiencing an economic disaster, SBA did carve out $10 billion of direct assistance in amounts not to exceed $10,000 per borrower.  That is different from the PPP program and not nearly the oomph needed to get the economy moving again.

This is a good time to begin talking about the relationship between banks and the SBA.  There exist roughly 7,000 banks in the US, and roughly 1,800 are approved SBA lenders, so about 25%.  Thankfully, banks with the biggest market clout, such as Bank of America, JP Morgan Chase, US Bank, and others are all historically very active SBA lenders.  Good push if everyone is on board.  What we learned from the WSJ reporting is that not nearly everyone IS on board.  In fact there is resistance from certain corners, especially among community banks who do not have the same kind of clout with the SBA.  Right now, we have lots of bad friction and not enough good friction.

So, where does that come from?  I believe there are three dysfunctions to be examined. Stay tuned for a blog series this week with my opinions based on personal experience participating in SBA lending programs as a bank executive.  You may have different opinions, but something needs to change.