One CUSO Board’s Decision on PPP Participation

In response to my Revealing Character blog, I received the following comment, used with permission.

Chip, just read your blog entry today about credit unions and government assistance. This is what I shared with my board a month ago. They unanimously agreed we did not want or need the money. Excerpts follow:

Board Members:

I am sure some of you are already aware of the governments $349 billion Payroll Protection Program (PPP) that was part of the CARES Act. The spirit of the new SBA loan program is to support struggling small businesses retain their staff and maintain ongoing operations over the coming weeks. For companies that do not materially change their payroll after 8 weeks, the loans will be forgiven. Essentially, the loan becomes a federal government grant for small businesses.

Based on analysis, the CUSO is likely eligible for the program and would be able to apply for nearly $XX mm in loans – equating to a little less than a third of budgeted 2020 net income. Given this would be a material sum, I feel it is important to engage the board on this decision and would appreciate your perspectives.

I have researched the program, consulted with those familiar with SBA lending, and contemplated this over the last few days. For mainly philosophical reasons, I currently do not feel we should pursue this program but recognize that this is a board-level decision. While we technically would qualify based on the very broad program definitions and limited documentation required, I do not feel this would be in the spirit of the SBA program — to support struggling small businesses that are contemplating staff layoffs/furloughs and in many cases their own continued existence.

This is a complicated and challenging decision. Nearly every business has had operations and plans affected in some manner by the pandemic and the future remains uncertain. Like your organizations, our CUSO has been impacted – but given our continued positive net income outlook across 2020 and broader balance sheet strengths, I feel confident we will weather this storm and there is no need to contemplate staff layoffs or furloughs in the foreseeable future. Additionally, while I have been told it is unlikely the SBA would publicly disclose the names of the companies that borrow, this is not the kind of headline I’d want to see in the trade press or used in anti-CU platforms.

Without a doubt, the money could be used for many purposes to support the business or further shore up our stability. For example, if we used the $XX mm loan to cover payroll for a period of time, we could choose to use the money we would have spent on payroll to create a fund to help struggling borrowers. But, then again, don’t we already have the capital resources available to deploy to go after $XX mm sized pressing needs or opportunities?

There are several different lenses one can look through to evaluate this decision. Another lens might be what our owners and other stakeholders might expect us to do (or not do)? While credit unions are apparently exempt from the PPP themselves, would they take the money if they were able to? I assume the answer is not binary across the industry, but it is interesting to think about in light of the decision we have to make.

 Thank you in advance for your consideration and counsel on this matter.

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