Testimony of Thomas G. Zernick, First Home Bank — December 10, 2020
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- Testimony of Thomas G. Zernick, First Home Bank — December 10, 2020
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- 2020-12-10
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- Testimony of Thomas G. Zernick, First Home Bank — December 10, 2020
Summary
Written testimony of Thomas G. Zernick, President of SBA Lending at First Home Bank, titled "Small Business in Crisis: The 2020 Paycheck Protection Program and its Future" and addressed to Chairman Rubio, Ranking Member Cardin and members of a subcommittee. The testimony states that the bank funded $876 million in PPP loans to 8,947 businesses and describes its experience of PPP Round 1, including shifting guidance through Interim Final Rules and FAQs. It asks Congress to simplify forgiveness, including a streamlined process for loans of $150,000 and less, and lists six policy fixes such as repealing the deduction of the EIDL advance and strengthening lender hold harmless provisions. It also urges enhancements to the 7(a) loan program and an extension of Section 1112 payments under the CARES Act. Exhibit A reproduces thank-you messages from PPP borrowers.
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Thomas G. Zernick, President of SBA Lending
First Home Bank
“Small Business in Crisis: The 2020 Paycheck Protection Program and its Future”
Chairman Rubio, Ranking Member Cardin, and Members of the Subcommittee—my name is Tom Zernick and I
am the President of First Home Bank’s SBA lending division named CreditBench. I began working on SBA loans
over 30 years ago and today manage a team of 60 dedicated CreditBench individuals. Last year, Credit Bench, a
nation-wide lender, was a top-10 producer in both volume and units, and the number one lender in the country in
volume for 7(a) loans under $350,000. Prior to PPP, First Home Bank was a $600 million community bank that
grew to $1.5B in assets due to our PPP loan originations, taking advantage of the PPP Liquidity Fund to obtain
the necessary liquidity to fund this explosive asset growth. As a relatively small community bank, my institution
supported 8,947 businesses around the country and funded $876 million in PPP loans, directly impacting
approximately 105,000 jobs. Please see the Exhibit A attachments that demonstrate some of our PPP recipient’s
appreciation for the PPP loan program.
I am honored to testify today as a longtime, successful SBA lender who knows first-hand what it is like to deliver
PPP loans. I appreciate this opportunity to hopefully provide a voice of reason on behalf of my lender peers and
my small business borrowers struggling with the impacts of the COVID-19 pandemic. Nationally, lenders helped
over 5.2 million businesses by funding over $525 billion dollars of PPP loans. This was only possible because of
the roughly 5,460 participating lenders that committed to serving small businesses through the PPP process. What
an accomplishment during such difficult times.
I plan to focus my testimony on my boots-on-the-ground perspective of the success of PPP Round 1 and the
difficulties associated with that success. On April 2nd our lives changed. We made a management decision to
temporarily suspend regular 7(a) lending and dedicate our 60 CreditBench team members to the rollout of PPP.
We drafted an additional 60 members from around the bank to ensure we had adequate resources dedicated to
processing these loan requests. Our team, from our CEO to junior staff, worked countless hours, 7-days a week.
We were building an Indy racecar while participating in the Indianapolis 500. The design blueprints seemed to
change weekly through Interim Final Rules (IFRs), Frequently Asked Questions (FAQs), and policy notices.
While I understand the need for quick action to implement this emergency relief program, the lack of direction
and clear and concise guidance that continues to plague the program has hindered our ability to efficiently handle
the thousands of applications from small businesses coming from across the country. Our small business
borrowers also have struggled through numerous burdensome and confusing elements of the program, and many
are fearful that they are going to do the wrong thing which could result in either being at odds with the federal
government or saddled with unexpected debt that they cannot afford.
Subsequently, both lenders and borrowers find themselves in the same position: worried that without certain
common-sense, no-cost changes to PPP policy we will not be able to participate in a next round of PPP in the
same way we did in the first round. Additionally, the assistance provided by PPP will not, by itself, be enough to
see the small business economy through unprecedented times, and other long-term recovery measures that turn
back to the traditional SBA loan programs should be considered. My testimony will touch on the simple ways in
which Congress can ensure that both lenders and borrowers will feel more comfortable with participating in a next
round of PPP and find opportunity in other recovery provisions focused on long-term recovery to see borrowers
through the continued pandemic.
Simplified Forgiveness and Other Key PPP Fixes: Round 2 Must Look Different than Round 1
To date, lenders have not received clear guidance from the Treasury and the SBA on our role in the PPP
forgiveness process. The complexity of the forgiveness process is causing delays for borrowers in obtaining loan
forgiveness. Two of the most problematic areas include: 1) the determination of the covered period, and 2) the
calculation of full-time employees (FTEs) required during the application process. Despite the numerous private-
sector webinars made available to businesses explaining how PPP forgiveness works, our borrowers still find the
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Thomas G. Zernick, President of SBA Lending
First Home Bank
process unreasonably burdensome and complex. Potential forgiveness reform for Round 1 PPP Forgiveness
should consider an elimination of the covered period and the elimination of the FTE calculation. Furthermore,
Treasury and the SBA should clearly define the lender’s role in the forgiveness application process by clarifying
that the borrower shall certify the forgiveness amount and that the lender is held harmless on the calculation of the
forgiveness amount.
If we don’t simplify the rules around the forgiveness calculations for PPP Round 1 and any subsequent round of
PPP loans, lenders like us will be inundated with the task of processing applications without clarification or
confidence in our role, and, as a result, find ourselves hesitant to participate as heavily in a next round of PPP
because of continued confusion and burden.
In order to create capacity for lenders to originate Round 2 PPP loans, lenders need more simplified forgiveness
application requirements. For example, borrowers with loans $150,000 and less should be able to take advantage
of a streamlined forgiveness process, and the lenders role in submitting these smaller loans for forgiveness should
be simplified as well. Treasury and the SBA need to clearly state that lenders are not required to calculate the
forgiveness amount, nor should lenders be required to independently certify the documents provided by the
borrower in order to justify the amount of the loan forgiveness request certified by the borrower. These changes in
the forgiveness application and process will free up lenders’ staff that will allow us to actively participate in
Round 2 of PPP while continuing regular 7(a) production efforts.
There also needs to be further PPP reform fixes that are no-cost policy enhancements so that a next round of PPP
can work for both lenders and borrowers in the way I believe Congress intended. Some of these PPP policy fixes
should include:
1. Repeal the provision that the EIDL advance amount is deducted from the eligible forgiveness calculation.
We are finding out that in certain instances 100% of the loan amount are not being forgiven due to our
customers having accepted an EIDL advance of $10,000 or less;
2. Strengthen lender hold harmless provisions to help lenders better understand their role and responsibilities
in the PPP process;
3. Prohibit the agencies from clawing back a lender’s processing fee based on an after-the-fact determination
of ineligibility, especially given the confusion around eligibility guidance;
4. Allow a borrower to reapply for a PPP loan if it repaid or cancelled the loan because it misunderstood the
changing PPP implementing guidance but now has proper documentation to qualify for a PPP loan. This
reinstatement process should also be available if the PPP loan was inadvertently cancelled. Also allow for
the borrower to adjust its PPP loan size if the lender or borrower miscalculated or entered data incorrectly
regarding the eligible loan amount while processing thousands of loans in an incredibly short period of
time;
5. Enhance and broaden the eligible use of proceeds under PPP to include all eligible business purposes.
While payroll protection is important, business survival is more important today. We need to give small
businesses access to capital to fund all of their normal operating expenses, including paying business debt
obligations, purchasing inventory, paying payables, and paying other expenses including payroll, rent,
utility bills, etc.; and
6. Simplify the calculation of the PPP loan amount. For example, by using the applicant’s business 2019 tax
return, a loan amount could be easily calculated with 4-6 months of their average operating expenses.
This would provide borrowers with 4-6 months of operating cash flow, allowing them to weather the
storm until a COVID-19 vaccine is broadly distributed. The original PPP loan was an injection of cash
sufficient to cover a 10-week payroll period. Nobody, including Congress, had any idea that this
pandemic could last for 18 months or more. We could also receive three months of bank statements to
prove the business is still in operation along with a certification from the applicant that it has been
negatively impacted by COVID-19.
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Thomas G. Zernick, President of SBA Lending
First Home Bank
These are just some of the many examples of key policy tweaks that could make both Round 1 and Round 2 of
PPP loans achieve the desired objectives.
First Home Bank is committed to participating with the Treasury and SBA in funding Round 2 PPP loans. But, if
Congress does not make changes to the implementation of PPP by eliminating hurdles and inefficiencies for
borrowers and lenders, both at application and forgiveness, the PPP distribution chain during Round 2 could be
significantly impaired by the lack of lender participation and unwillingness of businesses to navigate a complex
program that presents too many hurdles. Simply administering Round 2 the same way we administered Round 1,
without these reforms, in my opinion, would be a tragedy.
Long-term Recovery Measures in Traditional SBA Program Enhancements & Section 1112 Payment
Extensions: A Critical Need for Small Business Borrowers and Lenders
The country finds itself at a pivotal moment--no longer are we only battling COVID-19, but we are also battling
against the clock to save Main Street America. Swift action is necessary to save these small businesses and the
solutions lie not only in short-term PPP loans, but also in long-term recovery measures. It is imperative that we
focus attention on enhancing and stabilizing SBA’s flagship 7(a) loan program. It is the 7(a) loan program that has
always played a critical role in access to capital for small businesses during good times and bad.
First, I urge Congress to include a series of common-sense, low-cost enhancement provisions to the 7(a) loan
program in order to encourage continued access to long-term working capital for small businesses—a critical tool
to any economic recovery effort. During the Great Recession from 2009 to 2011, I experienced firsthand the
benefits of lending and managing SBA loan production under an increased 90% SBA guarantee coupled with
program fee waivers for lenders and borrowers. These provisions and others allowed my bank and those of my
peers to facilitate access to capital for borrowers that was not available through conventional means to the small
business community, and undoubtedly increased the ability for our institution to reach even more borrowers than
we would have been able to without these program enhancements during those difficult economic times. The
uncertainty we are facing with this pandemic goes far beyond the capital crisis faced during the 2009 recession. I
encourage you not to overlook the importance of including these types of long-term recovery measures in any
next relief package.
In addition, Congress needs to extend the Small Business Debt Relief payments that were created by Section 1112
of the CARES Act—a no-additional-cost provision given the amount of already funded dollars that remain
available. Section 1112 provided six months of payments for all existing and new borrowers in the traditional
SBA loan programs, including 7(a), providing vital, tangible, and quick relief to borrowers. Not only did these
payments provide stability to the 7(a) loan portfolio, but they also provided an impactful stimulus for new
lending, as well. Now that the majority of the six months of Section 1112 payments are coming to a close for our
borrowers, my bank is starting to become inundated with deferral requests from SBA borrowers who simply
cannot make their payments given that the economic conditions for most of these borrowers remain unchanged
since March. The inability to make loan payments and meet other operational expenses will force many small
businesses across the country to close their doors permanently. These payments are all the more critical because
the small business borrowers in the traditional SBA programs are different from PPP borrowers in that the
traditional loan programs require significant needs-based assessments for program eligibility, with the result being
that regular SBA borrowers are some of the most vulnerable small businesses in the country. In short, these are
exactly the borrowers we should be helping the most right now. I strongly recommend that Congress include
Section 1112 payment extensions in any next package aimed at providing relief to the small business economy,
with such extension ongoing for a period sufficient for the virus to be eliminated as a significant threat to these
businesses. Otherwise, I am fearful that in the following months and years, the government will start to see
significant stress on their SBA government guaranteed portfolios and will pay the price through backing increased
defaults, rather than taking advantage of the already funded Section 1112 preventative relief.
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Thomas G. Zernick, President of SBA Lending
First Home Bank
____
Thank you so much for allowing me the opportunity to provide you a boots-on-the-ground observation on the
successes of PPP and the difficulties created by these successes. My suggestions on reform are intended simply as
a means to increase the availability of access to capital for small businesses as quickly and efficiently as possible.
We appreciate all the hard work that Congress, the SBA, and the Treasury have undertaken and stand ready to
actively participate in Round 2 PPP and traditional SBA lending given what we hope will be a relief package that
strikes the necessary balance between thoughtful fixes to PPP and long-term recovery measures. First Home Bank
looks forward to continuing its leadership in serving the small business community.
4
Exhibit A
I just wanted to thank you. You guys Tom,
are freaking rock stars and obviously I wanted to take a second to thank you for
working around the clock to help us. making the application process for the PPP
Thank you so much! This is a super loan so straightforward and easy. I’m a BofA
scary time for us as business owners customer and just found out this morning that
since I don’t have a loan with BofA they will
and I am glad to know that we might
not process the loan for me. A friend of mine
be able to salvage something we’ve sent you link to me and I was able to apply
worked so hard to build. quickly. After so much distress caused by
BofA its a pleasure to see someone take other
-Unnati Patel Hall | Owner people’s business seriously. My employee’s
thank you!
BTW… I will soon be moving my business
away from BofA due to their self-serving
behavior during this trying time. First Home
Bank may well be where we land.
Sincerely,
Tom Sweat
Thank you so much Tom I am super
grateful and want to keep my Hello Tom,
employees employed! I am collaborating with a few small business
owners and I have directed them to your web-
Thank you, site to apply for the PPP. I would like to let you
know that you are 1 of a few lenders in the area
David T. Aronberg, Esq. that would even respond back let along provide
Aronberg, Aronberg & Green, Injury Law a seamless application process. THANK YOU
SO MUCH FOR THIS.
Firm
I know your website is probably bombarded by
applications and so we wanted to know when
do you think we will have a response on the
application?
Thanks again!
Viera Vorasarn
Realtor
Tom and Team, Cheryl,
I wanted to THANK YOU for making it such Without your long hours and commitment to helping
as many businesses as possible, we would not have
a streamlined and easy process to apply for
survived the stress of PPP. I hope you know how
PPP. Bank of America, the bank we’ve done much I appreciate you. You are and were responsive
business with the last few years, is creating and kind. I never thought we would communicate af-
major obstacles, and you are a breathe of ter 9:00 at night but there you were diligently doing
fresh air. When this passes we will happily all you could. AMAZING
be moving all of our business relationships
There were other folks in your bank who helped us
to First Home. but their work was done in more anonymity.
I just completed the application. Let us Please let everyone on the team know that I am
know if you need anything further! grateful.
Once we can get back under single roofs I would
Best,
like to find a way to move some business to your
Ryan Ayotte bank. Although there is a local office my bank here
Simple Skiff Beverages, LLC totally failed each and every one of their business
customers. First Home bank stepped up.
Warm regards,
Dave Dart
Managing Partner Morisey-Dart Group
To the team and personnel at First Home Bank
who have been under tremendous pressure to
get done all these PPP applications.
Hello Team,
I would like to express our sincere thanks I just received in a text a big thank you from Bill Leonhart
by sending out a humble token of our appre- at Kaw Valley Companies… his wire just hit and he is
ciation via a care package to you and your breathing again! Thank you so much for all of your help
professionals. In addition, I would like to send as this was a very dire situation! You saved approximate-
ly 80 families from dealing with layoffs… this is the root
a sincere and genuine letter of thanks to the
of the work we are all doing. I truly appreciate everyone’s
management and executive team expressing help on this!
our gratitude.
On a side note we are still tracking down the funds for
Scrap Management but I truly believe the issue is with
their bank and not us… I will let everyone know once I
KELLY ALLEN, CPA, CVA, ABAR, CFF, MAFF,
have confirmation so you can wipe it from your lists…
MST
LEVEL ADVISORS Coming from Kansas City a giant thank you to everyone
from Bill Leonhart at Kaw Valley Companies!!!
Michele
Jack:
The funds showed up today!! Good morning John and Tom,
Thank you so much for all of your help.
Once things are a bit calmer I will be reaching First of all, I hope all is well for you, your fami-
to you regarding moving my business to your lies and co-workers.
bank. You have been so helpful, reassuring,
honest, and responsive. I just can not thank you We received the PPP monies this morning.
enough!! Thank you for all your efforts. Thank you for
helping Michael Aiello Construction Inc bring
Please forward this email to whomever you back its valued employees.
report to. I know you are crazy busy but you We are most grateful for your efforts.
would take the time to respond to my constant
emails and you also followed up with a phone On a personal note, thank you for being patient
call. with me and my worries about not getting this
money.
I really do not know how big your bank is, but
you do not act like a big bank. Have a great Please be safe. Enjoy your day. May it be a
weekend. blessed day.
Sincerely,
Doug Anderson
Dan Brennan
Michael Aiello Construction Inc.
Katie,
Thank you for your attention to my loan
Michelle, needs and helping me complete my doc-
uments. I signed the closing documents
Thank you for working with us. I just sub- today.
mitted the closing signatures. Have a great I appreciate what you guys have done and
weekend! the long hours that have been thrown upon
you during this pandemic.
p.s. You made mine so much better! Know that it made a difference today :)
John Peck Dr Roger Harris.
To whom it may concern,
My name is Jim Scherer and I own Broke N Bored Grill on Redington Shores. I’ve been open for 2
1/2 years. Hurricane Irma hit 10 days after I opened, red tide followed the following year. Those
experiences were nothing in comparison to the difficulties of Covid-19. My business had been
experiencing 30% annual grown since opening. I proudly employed 19 people. The business was
debt free, savings in the bank and was starting to really turn a profit. Then a very abrupt shutdown
was forced and I closed. All 19 people were laid off. I took the savings account and paid all
outstanding debts and started planning.
Rewind back to January. Mike Giasone and I had started talking about a SBA commercial property
loan. I currently lease the restaurant property and have first right of refusal. I was developing a
game plan to come out of a strong season with enough money in the bank for the down payment.
That’s obviously off the table now, but the connection was critical.
I have banked with Fifth Third since opening. They have served me well and are conveniently located
a couple blocks from the business. When the PPP rolled out, I anxiously waited to apply for the
program with them. I signed an online inquiry form and waited for correspondence. I called the
branch every morning for instructions. I was told to wait. So I did. The program ran out of funding a
few days later.
During my time waiting for Fifth Third, I called Mike. I figured, he was familiar with SBA loans, he’d
have answers. My hunch was right. He returned my call, and put me into the application process
right away. I submitted my application and the program ran out of money that same day.
Fast forward a few days. Mike calls. I followed his instructions and submit a new application. Again,
we wait. The program was funded and I get the best news. Approval.
Wow. Tears of joy and relief as Mike tells me over the phone. My fear is starting to subside and I
can finally think positively again. I can feed my kids. I can pay the rent, call my employees and get
them back working. All because of Mike and the amazing team at First Home Bank. Although I’ve
not met any of you, I want to tell you what kind of impact your hard work is having on small business
owners such as myself.
I know that if it wasn’t for the hard work, dedication and customer service from the employees at
First Home Bank, I wouldn’t have received PPP funding. I will be moving my banking business to
First Home Bank and look forward to a strong relationship moving forward.
Keep up the hard work. Your dedication has kept this small business owner and my employees out
of the unemployment line.
Sincerely,
Jim Scherer
Chef/Owner
Broke N Bored Grill
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