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After false start, Puerto Rico credit unions enter race for second round of SBA emergency loans

By on May 3, 2020

José Julián Ramírez, executive director of the Puerto Rico Credit Union Executives Association (Screen capture of

Despite obstacles, issue $9 million in PPP financing to SMEs

SAN JUAN – After practically being excluded from the first round of Paycheck Protection Program (PPP) funding, the seven Puerto Rico-based credit unions and single federal credit union authorized by the U.S. Small Business Administration (SBA) to provide Covid-19 emergency financing had issued about $9 million in PPP loans to some 359 small and midsize enterprises (SMEs) on the island during the first week of the second round of funding.

The loans represent 55 percent of the total 652 PPP loan applications SMEs had filed at the eight credit unions as of midday Friday, José Julián Ramírez, executive director of the Puerto Rico Credit Union Executives Association, told Caribbean Business. The SMEs whose loans were approved together employ more than 2,000 people, he said.

Of the 113 credit unions in Puerto Rico, the only ones authorized to issue PPP loans are Arecibo Savings & Loan Credit Union (CooPACA), Zeno Gandía Credit Union, Jesús Obrero Credit Union, Camuy Coop, MaunaCoop, Oriental Credit Union, VegaCoop, and Caribe Federal Credit Union.

The second round of PPP financing started Monday, April 27, only days after Congress approved an additional $310 billion for the program created to help SMEs survive the lockdown orders that have forced the closure of these establishments during the Covid-19 pandemic.

The 1 percent PPP loans, which are wholly backed by SBA, are available to cover up to eight weeks of average monthly payroll for businesses employing fewer than 500 people. The SBA will forgive the portion of the loan used for payroll and other designated operating expenses for up to eight weeks, provided at least 75 percent of loan proceeds are used for payroll costs.  

The $349 billion in first-round program funding, which started April 3, ran out barely two weeks after it was launched. The program, created under the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (Cares Act), disburses funding on a first come, first served basis, or according to how quickly authorized banks and credit unions can process the loans.

While the largest commercial banks on the island were able to issue nearly $800 million in PPP loans before the money ran out in the first round, the island’s credit unions mostly remained shut out of the program because the SBA gave them access to the loan-submission portal barely a day before funding was exhausted. Only two credit unions managed to submit two PPP loans worth $42,000.

More obstacles

The start of second round of PPP loan funding was marred by SBA portal system crashes due to the high volume of loan applications filed. Ramírez said the island’s credit unions were largely unable to submit loans during the first 12 hours, but added that these loans started flowing later that day as the system stabilized.   

“With all of the troubles that these institutions faced with the collapse of the SBA portal due to hoarding [of funding by] large businesses, the speed and the efficiency of credit union personnel have started to benefit local small businesses,” he said. “Personnel from the eight credit unions assigned to these cases have maintained a pace of work that has allowed them to satisfactorily process these applications, including referrals from sister credit unions.”

Most of the PPP loans issued by credit unions during the week went to businesses offering professional services, including health and medical services, as well as to retail stores, restaurants, pharmacies, transportation services (truckers, automobile dealers and taxi drivers), and communications firms, among others. The average loan size was $13,800, with the smallest loan at $200 while the largest loan was for $840,000, issued to a security guard company, he said.

On Wednesday, the SBA designated eight hours, from 4 p.m. to 12 p.m., so that only credit unions and savings and loans institutions with less than a $1 billion in assets could tap into some $30 billion set aside for them, Ramírez said. However, SBA technical glitches again kept local credit unions from benefiting from this window of opportunity, as the money quickly ran out, he said.

Nevertheless, Ramírez credited the intervention of U.S. Rep. Nydia Velázquez, who chairs the House Small Business Committee, and of Resident Commissioner Jenniffer González for getting the SBA to open the door to credit unions and smaller banks.

“I don’t blame the SBA because the volume of loans they are processing is exorbitant; they really have a lot of work,” he said. “But obviously priority was given to the big banks over smaller banks and credit unions. This is perhaps because the government thinks most small businesses had their accounts in the biggest banks.”

Ramírez said, however, that the average loan issued by the commercial banks in the first round was $600,000, in contrast to an average of $20,000 for smaller credit unions and savings and loans companies.

“A self-employed person or very small business will not ask for $600,000. Big businesses will be the ones asking for this amount of money,” he said.

Call for more SMEs to apply

In fact, Ramírez said he believes only a fraction of local small businesses hurt by the Covid-19 crisis have actually applied for the PPP loans or have completed the process.

“There are credit unions that have finished processing all of the applications they have received and are waiting for more,” he said. “I think this is because it has been difficult for many self-employed people to calculate their own income and payroll. But they should not be intimidated by this. They should just call the credit union for help, because many of these have Excel templates that aid in calculating payroll costs for the self-employed.”

Ramírez stressed the importance of government aid to local small businesses, pointing out that the impact of the Covid-19 pandemic crisis on them than is “much greater” than what the catastrophic hurricanes of 2017, Irma and Maria, inflicted on SMEs.

“After Maria not many businesses were affected the way they are now. Back then, FEMA [Federal Emergency Management Agency] could cover many more of the losses, and businesses could collect on business interruption insurance, which is not the case now because coverage does not include a pandemic,” he said. “That is why we have to help those small businesses because they are being suffocated. The owners and employees of these smaller businesses are going through a really ugly period.”

Ramírez called on SMEs to submit applications before the fund is exhausted, which he said could happen this week. He said many businesses began the application process during the first round of funding, but never handed in all required documents.

“Documents are very important in this program because these are federal funds that will be audited,” he said. “And this program has a loan forgiveness provision. But if you lied in the application or did not provide the evidence for the loan, the federal government could go after you afterwards.”

Business owners must submit a list of employee salaries and benefits as of Feb. 15, Ramírez said, adding that documentation validating the existence of their establishments must be submitted. These include the State Department certificate of good standing, and the corporate resolution designating the representative of the business for signature and transactional purposes.

Business owners, including the self-employed, must submit employer Social Security numbers, utility bills, commonwealth Treasury Department merchant certifications, and copies of 941 quarterly tax forms or income tax forms, he said.

“These documents should ideally be digitized and sent via email to the participating credit unions,” he said.

Meanwhile, CooPACA, the largest credit union on the island, issued 102 PPP loans worth $1.9 million as of Saturday after submitting them successfully to the SBA, CooPACA President William Méndez Pagán told Caribbean Business. This is 81 percent of the total 126 PPP loans worth $2.9 million the institution received. The value of the approved loans is 66 percent of the value of all loan applications received.

There were 17 loan applications worth $1.2 million that were either “withdrawn, did not proceed, or did not qualify,” Méndez said, noting that seven loan applications had not completed the documentation process.

Most loans were issued to retail food establishments, gasoline stations, hardware stores, pharmacies, tourism-related businesses, health-related businesses, communications and media companies, construction companies, and nonprofit organizations, Méndez said. The loans averaged $20,955 each, with the smallest loan at $211 and the largest at $280,976.

“During the first day, it was an uphill battle to get loans into SBA’s E-Trans system. We were able to successfully submit our loans late Monday [April 27] and into the early morning hours of Tuesday [April 28],” he said. “We have demonstrated we can be more effective despite the great volume of loans being processed by the SBA.”

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