California's Small Businesses Just Received the Most PPP Funding in the US

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On March 20, 2007, a customer enters a Wells Fargo bank in San Francisco. During the current COVID-19 pandemic, some small businesses are turning away from big banks like Wells Fargo and working with smaller banks to work through the PPP loan process.  (Justin Sullivan/Getty Images)

California received the highest number of approved Paycheck Protection Program loans during the second round of funding, according to a recent report from the Small Business Administration. And most of those loans came from smaller banks.

One of those small lenders is the California-based community bank GBC International. Yvonne Pun is a commercial banking manager there and oversees its Northern California branches. She said that when the first round of PPP funding started, it was a mad dash for her team.

"We would start the day from 7 a.m. in the morning, and there were times when we did not leave our office until after midnight — just to push through the applications," Pun said.

Pun's office filed hundreds of applications for local businesses, but feels her small bank was at a disadvantage to bigger banks — where teams of coders wrote software to fill out applications in the Small Business Administration's E-Tran system automatically.

GBC International doesn't have those resources.

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"Every application that gets sent to us, we review it manually," Pun said. "We double check that every line of the application is correct."

Within just two weeks, more than $340 billion in the first round evaporated, in part because a chunk of that money went to bigger companies well-connected to those bigger banks that muscled their way to the front of the line. Some of those companies were embarrassed into giving the loan back, and the SBA has since put more restrictions in place to ensure small businesses get the loans.

Pun said this second round of funding has been a different story for her team.

"The second-round process is smoother because now we know exactly what SBA is looking for," Pun said.

Now, California is leading the nation with more than $66 billion in PPP loans as of May 16, doubling what the state received during the first round.

Noah Yosif, assistant vice president for economic policy and research and deputy chief economist at the Independent Community Bankers of America, said that fund distribution makes perfect sense to him.

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"A lot of these small businesses were able to get into the second round," Yosif said. "States that had a large small business presence, like California, were unable to be served during round one. [During the second round] where there's small businesses, there should be more PPP loans."

But the process still isn't smooth sailing for smaller banks. Just as community banks have started to master the PPP loan process, they're having to shift their focus to loan forgiveness. Pun expects her clients to start that process as early as the first week of June. Pun doesn't want the loan forgiveness process to be a mad dash like the first round of PPP funding, so she's working with the SBA to clarify the rules.

"We're still trying to finalize exactly what it is they need to provide to the bank as well as the documentation and also forms that they need to complete," Pun said.

Businesses that were approved for the SBA loan have eight weeks to spend 75% of that loan on payroll. But some shelter-in-place restrictions have prohibited businesses from opening. Jeff Bellisario, executive director of the Bay Area Council Economic Institute, said non-essential businesses are affected the most by these restrictions, and their recovery will be likely be slow.

"I think you're going to see many small businesses going out of business and potentially having an impact then on the banking system," Bellisario said.

Editor's note: KQED is among the local businesses and media organizations that have received a Paycheck Protection Program loan. This helps us continue to provide essential information and service to our audiences during the COVID-19 pandemic.