As we continue to reel from the pandemic and its fall out, there is good economic news to consider. Last week’s U.S. Department of Labor’s Unemployment Report showed 2.1 million new jobless claims that were filed over the past week. This was a decrease of 323,000 from the previous week. The total of lost jobs due to the coronavirus tops 40 million.
The hidden jewel in the report is that continuing unemployment claims fell by over 3 million to 21 million overall. This means that over 3 million people who had previously filed for unemployment claims during the shutdown, and who received benefits for more than one weekly period, have returned to work. This number should increase as more states begin to reopen.
The coronavirus has probably eliminated most of the long-range goals you began in 2020. This has required a major shift as new loan production has been replaced with payment modifications and Payment Protection Program (PPP) loans. Now that the new PPP loans are winding down, there are several shifts you need to consider in your business lending program.
The first is to continue to watch for changes in the PPP program. Both the House and Senate passed bills to modify the PPP by expanding areas where the money can be spent and also increasing the time to spend the money. Nothing is official yet but continue to watch for changes. Also, now is the time when your borrowers need to be focused on forgiveness, making sure that all expenses are made in according to the program and that records are in order. We have uploaded some helps on the PPP page on our website.
Second, make plans on how to handle upcoming problem loans that will crop up later this year. We all have borrowers in our portfolio who were marginal prior to the economic shutdown. Many of those may not survive. Managing problem credits takes tremendous energy and time and will take you away from your financially strong members. If you do not pay attention to them, someone else will. If you need help, we are opening up a division to assist in commercial and agricultural problem loan management.
Third, now is a good time to make plans for an independent third-party risk review of your lending activities. These reports are desired by the regulators and are often pricy. A good report should provide you with actionable intelligence to your operational strengths and weaknesses. The report should point you to ways you can improve and not just validate risk ratings with a spreadsheet. Contact us as we have seasoned professionals on our team to help.
Fourth, consider using government guaranteed lending moving forward for your loan production this year. Expansions of the SBA 7a and Express program, along with more options for FSA and USDA loans on the farm side can continue to provide necessary capital for your communities while limiting the credit risk.
Fifth, consider changing your thresholds for lending on various assets. Some commercial real estate types which were strong prior to the pandemic, show considerable weakness now. Hospitality, restaurants, and retail are considerably weaker. Office is now uncertain in the short and longer term as we do not know the full impact of the work from home trends. Industrial has new strength as more companies will elect to move production back into the U.S. Multi-family is strong except for student and senior housing. Remember that there is also differences in area as well. A mixed-use building located in an area with the economy open will produce more revenue compared to those located in areas with extended shut downs.
Finally, even though we can get lost in financial performance, spreadsheets, and income statements, remember it is still people that you are working with. Each business owner has dreams and hopes. Each farmer has concerns that keep them up at night. The economy has put undue stress on your members and sometimes they may end up taking it out on you. It is unfortunate but that is what we all deal with as humans. Allow them to go through the grieving process so they can reach a point of resolution to move forward.
In many cases, you provide hope for the future for your business members. You also may be the key that helps them protect their equity and assets in this time. These are huge responsibilities but also offer tremendous opportunities to make a difference in your communities.