California Bank CEO Calls for ‘Emergency Action’ to Avoid Deluge of Small Business Bankruptcies

“If we don’t get out in front of it, this will be worse than 2008,” First Choice Bank’s Nicole Swain says

Last Updated: March 17, 2020 @ 8:19 AM

How bad is the coronavirus going to get? According to the CEO of a California commercial bank that holds about $1 billion in loans from small businesses, it’s about to get extremely dire for companies and the banks that fund them.

Small businesses that make up the backbone of the U.S. economy are only a few short weeks away from insolvency unless the government immediately relaxes loan regulations, Robert Franko, the CEO of First Choice Bank, told WaxWord in an exclusive interview on Monday.

“Many, many small businesses now have no revenues or almost no revenues,” Franko said. “This means obvious businesses, like hotels and restaurants and retailers and less obvious businesses, like dental practices.

Robert Franko

Robert Franko

“If they have no revenue for one or two weeks, they immediately have to lay off staff,” he warned. “They no longer can afford variable costs. They stop buying food. Within a very short time, they stop paying their loans, their landlords, and all of that is going to cascade back through the economy.”

This is the case for dozens of small businesses that support Hollywood and related media industries, from production to craft services companies to traditional restaurants.

Franko wrote both President Trump and Treasury Secretary Steven Mnuchin on Monday asking them for “emergency action” to relax strict federal regulations that govern the loans any bank may give. Trump said last week that $50 billion was being made available to small businesses through the Small Business Administration but offered no details as to how that would be administered.

Franko and his Chief Banking Officer, Nicole Swain, have been deluged by worried business owners just days away from not being able to pay rent or make their payroll. “All our real estate clients — malls with barbershops — their tenants are calling them, they can’t pay the rent,” he said.

Franko said he saw a quickly cascading effect if the situation is not addressed. “Unemployment will go from 3% to as high as it can go. And businesses that can’t pay bills will seek bankruptcy protection. Courts will be clogged. After that, it’s straight chaos.”

Swain also suggested that situation could be worse than the mortgage banking collapse that led to the last recession: “If we don’t get out in front of it, this will be worse than 2008.”

It is urgent that the federal government ease the existing rules around loans, Swain said. “It could be done overnight and ease the stress. Right now, our hands are tied,” she said. “They (federal regulators) want us to do a whole analysis. The way they want to do this will take months to do this analysis. We want them to remove the red tape. Based on these times, we need to get the green light to do this without having repercussions.”

First Choice holds about $1 billion in loans from small businesses — defined as under $100 million in annual revenue — including many in the entertainment business; everything from talent management companies to caterers to hotel owners to medical offices.

An SBA loan typically takes between six to eight weeks to underwrite, with significant documentation required. Both Franko and Swain said that banks have no bandwidth to handle a crush of loan requests and the timeframe is not relevant for the pressing needs. “That $50 billion is never going to go down into the community,” Franko said.

According to the Small Business Administration, small businesses comprise 44 percent of US economic activity, about $6 trillion of GDP.

Click here to read the First Choice Letter to President Donald Trump