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IncredibleBank CEO: Hundreds of Northwoods business failures if lockdown extended

Economy OK, confidence high — if lockdown ends

April 21, 2020 by Richard Moore

The president and CEO of IncredibleBank, the former River Valley State Bank headquartered in Wausau with a digital-only web bank and 15 traditional branches in Wisconsin and Michigan’s Upper Peninsula, says northern Wisconsin will experience a significant proliferation of business failures if coronavirus lockdowns and business closures continue through May 26.

In a move which caught many by surprise, Gov. Tony Evers announced last week his original Safer at Home orders would be extended from April 24 through May 26, the day after Memorial Day. Those orders would close public and private schools for the rest of the school year, limit religious, funeral, or wedding gatherings to fewer than 10 people, generally ban all public and private gatherings of any number of people not in a single household, and keep all government-defined “nonessential businesses” closed except for a few permitted activities, such as curb-side pickup, carryout, and deliveries.

Todd Nagel, the president and CEO of IncredibleBank, said many small businesses will simply not be able to survive that timeline.

“I’m not being dramatic,” Nagel told The Times in an interview last week. “This is forecasted. We will have hundreds of businesses fail from Wausau north if we shelter in place until May 26. You have to have revenue to pay your bills.”

Putting real money into real pockets

Until Evers announced the Safer-At-Home extension, Nagel said his community bank’s small business customers were generally confident about surviving.

“A lot of the conversations that we had with small business owners were that if they could be 50% open by May 15, somewhere in that area, and then be wide open by July 1, they felt very optimistic,” Nagel said. “Probably 30 to 40% of our business customers are on 90-day (loan payment) deferrals so they are actually deferring three months of payments, principal, and interest, so with the 90-day deferral and some seed capital, I would say they were feeling really good about that timeline.”

Nagel said IncredibleBank was already providing the loan deferrals, as well as needed capital through the federal Paycheck Protection Program (PPP), which provides loans designed to cover roughly 10 weeks of a business’s average payroll costs and that can be forgiven if current levels of employment are maintained. 

“You look at your average payroll per month and we’re basically giving you a potentially forgivable loan for 10 weeks of payroll,” he said. “All you have to do is eight weeks from now have the same amount of people working — that’s the easiest way to look at it — paying them the same money and that loan is going to be forgivable. You can use up to 25% of that loan to pay rent, mortgage interest, utilities, and those types of things. But it becomes a grant as long as you have the same amount of employees from Day 1 when you get the loan and the same amount of employees for forgiveness.”

Nagel said it was a great stimulus package.

“It really injects capital into these small businesses and it puts people back to work, so we’ve had businesses down here reopen as a result of the paycheck protection program,” he said.

That fund is at least temporarily dried up, but Nagel said IncredibleBank had used it to already pump tens of millions of dollars into the pockets of its customers.

“We just gave out from our bank $10 million that came in for stimulus checks for individuals, and we just finished giving out 822 loans for $162 million in paycheck protection loans,” he said. “On the PPP before it shut down, that money will go right into customers’ hands, and most of our banks are Wausau and north, so everybody was feeling good and there was some hope.”

Indeed, Nagel said, IncredibleBank funded very close to most of its customers who applied for PPP.

“We did it in nine days,” he said. “We did an entire year’s production in nine days. That’s what we usually do in a year. So $162 million in new loans in nine days. Our teams are just phenomenal, and, by the way, most community banks did the same thing.”

That capitalization of business in such a short time was invaluable for small businesses, Nagel said.  

“That’s a neat story, and we had some very emotional customers who were very happy because they just didn’t know what they were going to do,” he said. “One day they woke up and they had to close. A lot of bars and restaurants found out at 3:30 p.m. that they had to close at 5 o’clock that day.”

Confidence, then anxiety

Nagel said if the state had announced it would re-evaluate the original order on May 1, which is only a couple of weeks away, and if businesses could open up by 25% or by 50% by then, or a week or so later, it would not have been such a big deal.

“Just think of the optics of that,” he said. “But just to say we’re done May 26, I have never had as many small businesses call me, text me, send emails in my career.”

Indeed, Nagel said, his phone and email just blew up with people asking what they could possibly do and many saying they did not think they could survive through May 26.

“If you can picture a restaurant that is now closed, for example, and doesn’t offer to-go food, how are they going to make it all the way to May 26?” he asked. “You might as well call it June 1 with no revenue.”

For many small businesses in northern Wisconsin, Nagel said, May is when they make most of their money.

“If you think about other businesses in the Northwoods, you know somebody who is selling docks and lifts, how are they going to make a business if they can’t open until the day after Memorial Day weekend?” he said. “Look at the Northwoods. If you are a restaurant or a boat dealer, a dock dealer, if they can’t open, how are they going to hire employees and sell boats or serve food. This is not good.”

Flower shops, garden centers, and similar businesses make as much as 80% of their revenue in the May and spring season. Larger businesses, too, are forcing workers to use PTO and vacation time, while other employees are opting to take lay-offs for four months, without any guarantees those employees will return when normal business resumes.

And how could many businesses open even on June 1, Nagel wondered. 

“That’s a long time, and it’s about jobs, it’s not about profits,” he said. “Because if they did open at that particular time, no one is making a profit out of the chute. It’s about preserving jobs. I just think you are going to see a lot of small businesses fail.”

The extension of the lockdowns could also cause small businesses to deplete their PPP loan funds before they could get up and running and bring in significant revenues. In that case, Nagel said, IncredibleBank and other community banks will be there to help.

“We’re going to do what we always do as a bank,” he said. “So if our businesses run out of capital, we may have to sit down with them and we may need to extend to them a new and what I would call normal line of credit for working capital or to buy new equipment. We’ll have to sit down with our customers and perhaps lend them some more money, under what I call normal bank terms and conditions.”

On the bright side

Nagel said he did not have many long-term concerns about the underlying strength of the economy, so long as the state starts reopening very soon.

“If we start reopening the state before mid-May, our computer models show that we will be OK,” he said. “Is everyone going to be flourishing? No. But we will be OK, and with some of the short-term measures that all community banks took, and other banks, we’d be in good shape and, with the economy coming back, I think there’s a lot of pent-up demand. I’m certainly not talking about a ‘V’ recovery, but I think there would be a decent recovery and long term we don’t think we would have a lot of loan losses.”

For that to happen, though, Nagel said, the state has to start reopening its economy sooner rather later: “It’s about how we get the economy reopened, and I’m not saying 100 percent on Day 1,” he said.

Nagel also said banking and other financial institutions are much stronger this year than they were during the years of the Great Recession.

“We are much more capitalized today than we were during the 2008-09-10 issues,” he said. “All banks are much stronger from a capital standpoint. The Fed (Federal Reserve) has eased our capital ratio requirements. In other words, in this PPP program, we don’t have to count them toward capital because they are so short term and therefore we don’t have to maintain as high a capital ratio so the Fed has done a great thing there. Also, the federal reserve has opened up more liquidity to us so if we do have deferral, we are able to pull from the Fed window and basically borrow money, kind of like a line of credit, so in the short term I feel very good about the banking industry”.

But if the economic crisis goes longer and more long term, there’s trouble ahead, Nagel warned.

“We are already over 30 days into this, and another 30 days?” he asked. “Who can shut down a business for that long and survive? I don’t care what business it is.”

Richard Moore is the author of the forthcoming “Storyfinding: From the Journey to the Story” and can be reached at richardmoorebooks.com.

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