Small businesses that have been slammed by the coronavirus pandemic and expect to have difficulty making commercial loan payments should call their bankers now to work out possible adjustments.
Bank executives contacted by MiBiz say they’ll do what they can to work with business clients who were forced to close by a state order and had their cash flow suddenly interrupted, or were affected financially by the pandemic.
“It’s incumbent on all of us to work with our clients to get them through the pain,“ said Robert Kaminski, president and CEO of Grand Rapids-based Mercantile Bank Corp.
“We certainly are open to engaging in these kinds of conversations with our clients,” Kaminski said. “Everything has to be on the table right now.”
Banks can offer deferred payments on loans, modify loan terms and due dates, extend or increase operating lines of credit, provide access to short-term working capital, and waive fees, according to banking executives contacted by MiBiz.
West Michigan market leader Fifth Third Bank, for instance, will offer payment deferrals for up to 90 days with no late fees as well as “a range of loan modification options.” The bank also is waiving all fees on Fifth Third Capital loans that offer borrowers unsecured lines of credit and term loans from $10,000 to $100,000.
Sparta-based ChoiceOne Bank also will offer borrowers a 90-day payment deferral with an option for a second 90 days “if this continues on,” CEO Kelly Potes said. The bank can make payment deferrals on a loan’s interest or principal or both, Potes said.
ChoiceOne also will consider extending operating lines of credit and waiving fees, he said.
Rather than take a blanket approach, the bank will decide on modifications based on the needs of individual borrowers, he said.
“We’re talking with each client and determining what’s best for them,” Potes said. “Everyone is kind of unique. What might be good for one client might not be best for another.”
Many banks take the same or similar approach. All urge clients who are having or anticipate trouble from the COVID-19 crisis to contact them.
“It’s all about communication. That’s why we want to talk to our clients,” Potes said.
At Grand Rapids-based Independent Bank, “We are having conversations with every one of our clients. ‘What can we do to help?’” President and CEO Brad Kessel said. “We’re going to do the right thing. It’s a real time to collaborate. We’re going to do everything we can because a community bank is only as strong as the community it serves.”
Recent regulatory guidance gives banks flexibility to work with commercial and individual borrowers.
The joint statement that an array of federal and state regulatory agencies issued March 22 encouraged banks and credit unions to “work constructively with borrowers affected by COVID-19.” The regulatory agencies said they would not direct lenders to categorize loan modifications as “troubled debt restructurings,” or TDRs, in their accounting, which can lead to regulatory scrutiny and have financial implications.
“The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk,” according to the joint statement from regulators.
The Financial Accounting Standards Board (FASB), an organization that sets generally accepted accounting principles in the U.S., agreed with the approach taken by regulators.
The massive federal stimulus bill that Congress approved late last week gave further relief for banks by suspending TDR requirements on any loan modifications that were made as of March 1 and extending either through Dec. 31, 2020, or 60 days after the end of the national emergency.
The stimulus bill also allows banks to make a permanent modification to the loan and still not treat it as a TDR, a long as the borrower is not more than 30 days past due on payments, said Jeff Ott, a partner at Warner Norcross + Judd LLP.
“It gives any financial institution a lot of flexibility to work with their customers to make loan modifications to help customers get through this crisis without treating it as a TDR and without having to suffer adversely because it modified the loan,” Ott said of the stimulus bill.
In response to the COVID-19 pandemic, banks and credit unions generally have closed their lobbies, except for appointments. They encourage customers to use ATMs, drive-thru lanes, online banking and mobile apps to do transactions.
Many banks have increased call center staffing and expanded calling hours, according to Community Bankers of Michigan President and CEO Mike Tierney.
The trade group for community banks across Michigan is working with regulators “to relax rules that will help keep bankers and customers safe — like not requiring appraisers to enter a home to complete a real estate appraisal for a mortgage,” Tierney wrote in an op-ed piece.
“Community banks have been working around the clock to implement pandemic protocols, which address not only hygiene and cleanliness for customers and employees, testing procedures, checking back-up systems in case any critical system is impacted, and they have also looked at how to accommodate all types of customers so they can maintain access to vital banking services,” Tierney wrote.