Business Operations: Community Banks, Credit Unions, Step Up In COVID-19 Crisis
The last time there was a global financial catastrophe, banks were the problem.
Now, as the COVID-19 pandemic threatens to plunge the world into a recession rivaling 2008-09, community banks and credit unions are a part of the solution.
It's true a new federal program to provide small business administration loans via local institutions is awkwardly lurching through its painfully chaotic early-days phase. However, banks and credit unions are independently stepping up with their own unique, client-tailored efforts and are backed by statements of support from state and federal bank regulators allowing for greater flexibility, according to Richard Hunt, CEO of the Consumer Bankers Association.
“Banks have implemented emergency measures to assist impacted customers and small businesses," Hunt said in a statement released following a meeting at the White House in March.
Among the kinds of fast-tracked measures to help individuals and businesses are fee waivers, credit line extensions and new forbearance programs.
In the vastest expanse of safety netting draped over the land, some $349 billion in SBA funds were earmarked for emergency payroll purposes, part of the $2 trillion congressional stimulus package.
According to statements by Treasury Secretary Steven Mnuchin, businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day. Small business owners are encouraged to apply provided, though, that they are willing to remain on hold for hours or days, a tough and hopefully temporary reality as millions of applicants pour in.
But there are plenty of examples of banks offering their own ways and means to get through difficult times.
Washington State's WaFd, formerly Washington Federal, has risen to the occasion, launching its own new emergency loan options, including
90-day-interest-free lines of credit up to $30,000 approved in as little as two days.
In Arizona, where Seattle-based WaDd has extended its national footprint, some 20 business have applied, according to Mike Brown, the Arizona regional president of WaFd Bank.
During uncertain times, credit unions always step up to respond to the needs of their members and their communities, according to the World Council of Credit Unions.
"It has never been more important that we step up to follow those principles now as we all confront the Coronavirus (COVID-19) pandemic," the organization said in a statement.
The Credit Union National Association (CUNA), meanwhile, is documenting how U.S. credit unions are helping members.
According to CUNA/League survey results (as of March 24): 92% of credit unions are offering loan modifications and fee waivers; 78% have created new loan products; and 30% have made donations to, or aided, community organizations.
Credit unions in every U.S. state are working with members during this emergency. AmericasCreditUnions.org has been re-launched to document these state-by-state efforts.
Meanwhile, in Canada, Vancouver-based Vancity, that nation’s largest community credit union, has developed a loan payment deferral program, offering interest-only payments and even a deferral of loan payments for up to six months.
COVID-19 has created a massive consumer spending shock that is crippling the world’s economy. The U.S. stock market has declined, on a year-to-date basis, as much as 25%.
Throughout the country, most non-essential businesses have closed. Many are forced to work from home. Some 87% of small business owners are struggling due to the coronavirus, according to a survey conducted by WalletHub.
The National Credit Union Association said it is working with federal and state regulatory agencies, in addition to federally insured credit unions, to “ensure that credit unions can take reasonable and prudent steps to assist members and communities impacted by the coronavirus, and to manage their operations.”
In addition, the agency said it is monitoring information issued by international and U.S. health organizations. Regulatory agencies have encouraged financial institutions to work with customers impacted by the coronavirus.
“The COVID-19 pandemic will affect federally insured credit unions, members, and communities in a number of different ways,” NCUA Chairman Rodney E. Hood said, touting a new emergency grant program.
“Low-income credit unions serve many communities that are vulnerable to economic and financial disruptions resulting from the virus. This initiative can help eligible low-income credit unions provide needed support to their members and communities during this challenging time. I encourage all eligible credit unions to consider and apply for these special grants and loans.”
Eligible credit unions may apply for the COVID-19 Emergency Response grants or loans now through May 22.
Loans have a maximum award of $250,000 and will mature in three years. There will be no interest rate applied to loans awarded under this initiative throughout the full term of the loan. All loans must be repaid to the NCUA regardless of how they are accounted for by the credit union. The entire principal is due at maturity. There is no penalty for principal prepayment. Principal prepayments may be made as often as monthly.
Grants, with a maximum award of $10,000, will be awarded on a rolling basis throughout the open application period. Minority depository institutions and credit unions with less than $100 million in assets will receive priority. The NCUA will make awards on a first-come, first-serve basis until the allocated funds are fully exhausted.
Funding for this initiative is provided by the Community Development Revolving Loan Fund, which Congress created to support credit unions serving low-income communities.
Credit unions with questions should contact the Office of Credit Union Resources and Expansion by email at CUREApps@ncua.gov.