0820_AUG Comstock's Magazine 0820 August | Page 36

ECONOMY
BANKING AND FINANCE
Providing Funding
to Businesses
Will Be Crucial
in Recovery
by Steve Fleming
While the U.S. economy has started
to reopen, it is clear that many businesses
will not return to pre-pandemic
revenue levels for quite a while, if ever.
Consumer behavior reflects a great
deal of anxiety about the health risks
associated with the coronavirus, and
folks are going to be reluctant to attend
sporting events, fly in airplanes, stay
in hotels, dine in restaurants, go to the
gym and visit shops until they feel safer.
The survival of many businesses will
depend on the cash reserves built up
prior to the pandemic and the speed
that an effective vaccine is developed
and widely distributed.
There are a few bright spots in
the economy, though, as demand has
soared for home-improvement items,
recreational vehicles, pool supplies,
cleaning supplies and groceries, among
others. As always, when there is massive
change in consumer behavior, there will
also be great opportunities for entrepreneurs
with vision, access to capital and
the skill to implement successfully.
Having started my banking career
in 1980, this economic downturn
will mark the sixth recession I’ve
experienced. When the economy
turns down, we are always faced with
questions about the depth and length
of the recession. What makes the
current downturn particularly unique
and difficult to forecast is that the
trigger is a public health crisis. As a
consequence, we have a double dose
of uncertainty: How long will we go
without a vaccine? It is impossible to
project the outlook for the economy
with confidence without having an
answer to this question.
On March 27, the Coronavirus Aid,
Relief, and Economic Security Act was
passed into law with $349 billion (later
expanded to $659 billion) in funding
made available on very favorable
terms for small and midsized businesses
via the Paycheck Protection
Program. On short notice, the banking
industry was asked to process a huge
volume of loan applications under
stressful circumstances. Most of the
banks and their bankers stepped up to
meet this challenge. I’m very proud of
the industry’s performance, as nearly
five million borrowers have already
received $517 billion in PPP loans —
money intended to provide a financial
bridge until the economy recovers.
Still, this financial bridge will not
be long enough for some businesses
as the impact on the economy of
COVID-19 is going to last longer
than our policymakers had originally
hoped.
Banks have a symbiotic relationship
with the economies in which they operate:
A healthy economy typically leads
to healthy banks, while a poor economy
will stress the financial system. While
the most important elements for an
economic recovery will come from the
health care system (i.e., a COVID-19
vaccine), the strong banking industry in
Sacramento will play a vital role in the
following ways.
More funds are available
Banks are in the business of providing
capital to support the operations of
focused, entrepreneurial, competitive
and successful business owners. With
interest rates at historic lows, the cost
of borrowing is attractive compared to
the cost of raising equity capital. The
PPP understandably garnered most of
the attention in the CARES Act, as it
has provided a tremendous stimulus to
the economy, but the less well-known
federal Main Street Lending Program
could play an important role in the
near future. The MSLP is designed for
midsized businesses that were doing
well before COVID-19 negatively
affected their operations and now need
working capital to sustain operations.
While not as generous as the PPP, the
terms of the MSLP are still quite attractive.
For instance, the MSLP loans
have a five-year term with the majority
of the loan amount not scheduled to be
repaid until the maturity date.
Depository and cash management
services are even more important
It is important that bank depositors
take advantage of the many tools banks
provide to protect their money, as
cyberfraud has been expanding rapidly
during the pandemic. Banks provide
Federal Deposit Insurance Corp.
insurance — potentially in unlimited
amounts via the Promontory Network
— to ensure funds in deposit accounts
against bank failure. In addition, banks
have many tools their customers can
use to mitigate the risk of having funds
in deposit accounts stolen.
Relationships matter
Relationships in business matter, and
during times of stress and uncertainty,
they matter even more. Now is
the time for business owners to draw
upon the trust and goodwill that they
have built up with their bankers over
time. Bankers should be communicating
regularly with their clients (with
proper social distancing), developing
a clear understanding of what is
happening with their businesses and
seeking ways to help.
Steve Fleming is president and
CEO of River City Bank, the
largest and oldest bank based
in Sacramento. He’s been in
the position since 2008 and
has worked in the banking
industry since 1980. He’s also
a member of Comstock’s Editorial
Advisory Board.
36 comstocksmag.com | August 2020