Keep your workers, the loan is forgiven: How Colorado banks are coordinating a massive coronavirus lifeline

As coronavirus cases in Colorado’s mountain communities reached 50, Karen Hoskin made the difficult decision to temporarily close the tasting room of Montanya Distillers. She gave the affected workers two weeks pay and hoped to reassess soon. 

That was more than two weeks ago. 

Hoskin, who founded the Crested Butte rum maker in 2008, is still paying all of her 32 employees, whether they’re working or not, and despite declining sales in just a few weeks. They’re like family, she said. “When I need them the most, they show up for me and work so hard at our busiest times of the year when we are crushed.”

She’s hoping for relief in the form of a new federal small-business loan that includes an astonishing feature: she won’t have to pay it back. It’s part of the $2 trillion federal COVID-19 stimulus package, passed last week by Congress. And it means that she can get a loan to cover two-and-one-half-months of payroll, rent and utilities, and — if used for those purposes — the loan could be forgiven. She hopes to apply when the loan becomes available from her bank, which is expected to begin Friday.  

“It’s probably not all that we need. But I’ve been paying out of pocket for 32 people who have been working and many who have not been working for two-and-a-half weeks,” Hoskin said. “Keeping them on the payroll is the number one best way for us (when) we’re able to hire them back.” 

Hoskin speaks of the “Coronavirus Aid, Relief, and Economic Security Act,” or the CARES Act. It’s the one that gives most American adults $1,200. It provides an extra $600 a week for those on unemployment. And it set aside $349 billion for struggling companies to fund the “Paycheck Protection Program” loan, the forgivable loan if employers keep workers employed and their businesses running.

About 1,800 banks, including several in Colorado, are already qualified to make the loans since they’re U.S. Small Business Administration lenders. Banks are now waiting for the final rules from the SBA, which are expected by Friday, according to an agency spokesman. The overall program outline is detailed in the CARES Act and banks are preparing for what will likely be huge demand from local businesses. This week, Vectra Bank in Denver started moving more employees to its review, process and approval divisions for training. 

“Our customers are so interested, our phones are ringing off the hook with people wanting to know how this is going to work,” said Bruce Alexander, Vectra’s president and CEO. “Our plan is that after we take their application and get it approved, we’d open an account and put the money in the account the same day — same-day approval. We all realize there’s a real sense of urgency to this.”

It’s an unusual loan with few traditional requirements — there’s no collateral needed and no personal guarantees necessary. It appears akin to the low-barrier $1,200 checks, which as long as your past taxes prove you made less than a certain amount, the money will show up in the mail or your bank account. The new loan relies partly on the “good faith” of applicants to certify that their business was hurt by COVID-19 and they’re not waiting on another federal COVID loan for a similar purpose. 

“We’ll have to collect some things that are just for basic bank regs that are around Know Your Customer and things like that, but that’s it. And I’m speaking for ANB (Bank) but there will be no financial statements required, there’s nothing,” said Koger Propst, ANB’s president and CEO. “So why can we do it? Because they moved this to 100% guaranteed by the SBA.”

The law requires banks to verify the applicant’s identity, the company’s past year’s payroll, payroll taxes and unemployment insurance filings, and that it was in business on Feb. 15.

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The COVID-19 pandemic caused economies worldwide to crater as businesses were forced to shut or slow down because of government mandates. Wall Street tanked. Colorado’s unemployment filings skyrocketed, with nearly 20,000 claims for the week ended March 21 — or about 250% higher than the highest weekly count during the Great Recession. The $2 trillion federal stimulus package was meant to quickly provide cash with few strings in order to help as many citizens and businesses as possible to hold off financial ruin a bit longer as the coronavirus ravages the U.S. 

This is nothing like the Great Recession of 2008, said Mac Clouse, a finance professor at University of Denver’s Reiman School of Finance. 

“You can trace some of the problems in the 2008-2009 financial crisis to just bad lending decisions and mistakes and activities that shouldn’t have been done,” Clouse said. 

“What’s going on now is not the fault of anybody. Just go back a couple months, things were booming. The economy was booming, we were at record high stock levels, unemployment was incredibly low, the economy was doing incredibly well,” he said. “And if you asked the question, ‘What could possibly happen that would stop this train?’ Well, we unfortunately learned.”

Details and patience

Rachel Wells, owner of Santiago’s Mexican Restaurant, said that offering curbside pickup was left up to each franchise owner of the popular green chili and breakfast burrito eatery. She decided to close the three stores she operates through April 11 to protect her employees, the length of Gov. Jared Polis’ stay-at-home order. 

She’s been looking into different recovery options, such as checking with insurance for coverage because, “Yes, this is a God given act but the government asking us to close our business is not.” 

Her voice lit up upon hearing about the federal paycheck loan. 

“If you think about it, two-and-a-half months of payroll when you have 30 employees, that’s a lot of money,” Wells said. 

Small businesses are learning the details of the new loan mostly from trade organizations, including the Colorado Restaurant Association, small business group NFIB and local chambers.

“You must certify that the loan will support ongoing operations of the business due to current economic conditions, and the loan for this program can only be used for expenses incurred between Feb. 15 and June, 30,” Holly Wade, NFIB’s director of research and policy analysis, advised during a webinar on Monday. 

“It’s very important to keep all paperwork on qualifying expenses,” she added, “so you can make sure you have all the paperwork available for the lender.” 

During the webinar Tuesday for the Colorado Restaurant Association, attorney Torben Welch, a partner at Messner Reeves, repeated the benefit of forgiveness should appeal to all businesses: “I would recommend everybody at least attempt to see if it works for you, simply because there is a forgiveness to it.”  

There is some concern about potential fraud, and skepticism from some business owners about whether the loans will be all that they promise. Until the process actually begins, no one knows what demand will be, or whether banks are equipped to handle the potential deluge of applications. But with COVID’s devastation on local business, Congress needed to get this passed quickly, said Alexander, with Vectra Bank.

“I think it did need to be done, because otherwise the impact would be that the unemployment rate would skyrocket to 20% and that just ripples throughout the economy. How do you restart these businesses if you don’t have some way to bridge them through,” he said. “I mean, is it the perfect solution? I don’t know. Did they put it together in a week or two so could it have holes in it? Of course. But I think conceptually, it does make sense right now to help out all these folks.”

Hoskin, with Montanya Distillers, closely followed the CARES Act “get formed, unraveled and rebuilt.” She met with other Gunnison Valley business leaders connected through Western Colorado University’s ICELab, to discuss options and benefits on weekly Zoom calls. She applauds how the CARES Act seems to protect business owners who do the right thing.  

“What I was really impressed with was if you’ve been dodging anything in the past — payroll taxes, paying under the table — that’s really going to bite you back. This really benefits companies that have been on the straight and narrow, which is my company,” Hoskin said. “If we had 100 employees in January or February and we only have 80 when we applied for the loan, we would only get 80% of the loan forgiven.”

Since the loans are guaranteed by the federal government, Vectra and ANB believe the process could be fast, with same-day approvals and cash deposited into customer accounts on the same day. The loans won’t be stuck in a federal funnel waiting for SBA approvals. These loans are handled by local banks.

The first due dates can be deferred for up to one year. If the loan is used for other expenses not deemed forgivable, then only part of the loan is forgiven. Also, if the business cuts staff or reduces wages between Feb. 15 and June 15, a similar percentage of the loan would not be forgiven. Companies, however, could rehire those employees or make up for the wage reductions by June 30 to qualify for forgiveness. 

The rest of the loan would have an interest rate capped at 4%.  

“The goal is to allow small businesses to pause,” said ANB Bank’s Propst. “And that’s a hard thing when sales go from 100% to zero or 10%, there’s no small business who can plan for that. And no big business who can plan for that, frankly. And so what the virus and the plans for trying to contain it means is everybody just went to zero and this bill gives people a chance to say ‘Well, it’s a pause, not a kill.’”

Banks making the loans are allowed to charge a 5% fee for loans of $350,000 or less, a 3% fee for loans between $350,000-$2 million and a 1% fee for loans of $2 million or more. 

There’s also a second loan available for businesses that need more cash. The Economic Injury Disaster Loan, which was part of an earlier COVID law passed on March 6, authorized $7 billion for the SBA to offer up to a $2 million loan with a maximum 3.75% interest for for-profit businesses and 2.75% for nonprofits. All who apply are also eligible for a $10,000 emergency grant issued within three days of the application. 

Recovery seems far off especially with no end to COVID-19 in sight. But Polis has started building a recovery plan, creating a team led by former Denver Mayor Federico Peña and entrepreneurs like Brad Feld, a venture capitalist who is keeping the public updated on Twitter. 

The economy will revive someday but will likely look different with, perhaps, more people working remotely or businesses deciding they don’t need as much real estate as they did pre-COVID-19, said Clouse, the DU professor. But what the world doesn’t need at this point is the stress of past-due payments and bill collectors.

“I think one of the biggest areas that we have to make sure gets going quickly is the small businesses because they’re the ones most at risk,” Clouse said. “Let’s get things going again. When the economy is going again you can start catching up to what’s owed. But it’s not going to happen if everybody fails. … If you let them ride a little bit with some patience in terms of collections, something could happen.”

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