On the surface, it sounded like an appealing offer from the state of Connecticut, a loan representing a bridge to $2 million in federal funding to ride out the coronavirus pandemic, which would convert to a grant if a small business kept all workers on the payroll.

With those loans requiring accompanying guarantees by proprietors to repay borrowed amounts — with their personal assets as collateral — many small business owners spent the second full week of the coronavirus crisis struggling still with the risk of putting all on the line, against the potential reward of their enterprise emerging intact on the other side, whether weeks or months out.

On Friday, the willingness by many to take the risk was apparent, after the Connecticut Department of Economic and Community Development reported it planned to double the size of the bridge loan program as businesses swamped DECD with more than 4,000 loan applications.

The state is stepping up more than a decade after banks in Connecticut and elsewhere failed elements of the stress test administered by the Great Recession, with the administration of former Gov. Jodi Rell forced to intercede to forestall families being thrown from their homes in mortgage seizures. With new loans hard to come by for some businesses, Rell’s successor Dannel P. Malloy came up with a Small Business Express program, that over time would lend in excess of $300 million directly to companies that were struggling to get approvals for financing to expand or simply keep their doors open.

With Gov. Ned Lamont knowing better than most the ins and outs of financial credit — both in his experience as an entrepreneur and by extension his spouse Annie Lamont’s job as a financier of growing companies — Lamont is counting for the time being on banks extending payment terms for borrowers on the hook for outstanding amounts coming due, and keeping the spigot open for any new loan applications.

Businesses and families alike waited impatiently this week for Congress to reach agreement on a $2 trillion emergency relief bill, with provisions including a $350 billion loan program for small businesses that would be forgiven if they did not resort to layoffs. With the Small Business Administration buried in applications for financing, Lamont authorized a $25 million “bridge loan” program in Connecticut intended to cover up to three months of operating expenses for businesses.

“We’re paying special attention to those small business people wondering how they can keep people employed, how they can keep their doors open — how they can keep their lights on over the next three, four, five months,” Lamont said Wednesday.

‘Safe and sound banking practices’

To get the Connecticut bridge loan, however, owners must sign off on a personal guarantee to repay the amounts — SBA has a similar requirement — with DECD indicating as well this week that available bridge loans will be reserved for companies that can show a history of recent profits. That could leave many new businesses out of the money that have yet to see revenues eclipse their startup expenses, or established companies that were in the midst of a rough patch prior to the virus emergency.

On the heels of the financial panic in the fall of 2008 that was sparked by the pop of a mortgage lending bubble, it took a full six months before Connecticut banks began constricting their total loans outstanding across both commercial and individual finance. Loan growth resumed in the first quarter of 2010, with banks ultimately needing two full years to get back to their lending levels on the eve of the 2008 collapse.

Connecticut’s commercial banks have been increasing loans outstanding on an almost uninterrupted basis since 2013, save for a momentary blip in the spring of 2018. As of last December, banks had a record $87.2 billion in capital on the street to Connecticut borrowers, $33.4 billion more than their combined lending power in 2011 as Connecticut emerged from the Great Recession — an increase of more than 60 percent.

In the past week, Bank of America, JPMorgan Chase, People’s United Financial and Webster Financial have been among the regional and national banks pledging to be flexible with borrowers, but while still assessing the risk in their portfolios themselves ahead of the April spate of earnings reports that will give a better picture of the immediate impact of the pandemic, and any longer-term ripple effect.

The memories are fresh for many individuals and businesses that found themselves swamped in debt or were otherwise hung out to dry a decade ago by nervous lenders. For homeowners, Connecticut enacted a mediation program forcing lenders to work out repayment schedules with homeowners on problem mortgages, and then extended it long after the crisis as the program produced positive results.

Connecticut’s commissioner of banking Jorge Perez issued his first guidance a week after Gov. Ned Lamont’s March 10 declaration of a public health emergency, suggesting banks and credit unions waive fees for late payments and account overdrafts, allow for extended payment schedules on loans, and ease credit terms for fresh borrowers. Any changes to lending policies “deemed prudent” will not be subject to regulatory criticism, Perez added.

Through a spokesperson, Perez declined an interview to detail further his department’s early efforts to keep banks lending, citing demands on his time.

“Financial institutions are encouraged to work with all borrowers,” Perez stated in a March 17 memo to the banks under his regulatory purview. “Efforts to work with borrowers under stress consistent with safe and sound banking practices will contribute to the ... recovery of our communities.”

Great Recession legacy

Connecticut was among the earliest states to receive an “economic disaster” declaration from the Small Business Administration, with SBA guarantees allowing banks to recover from the federal government the large balance of any loan principals that are not repaid by borrowers in default.

But with SBA overwhelmed with applications nationally, the Lamont administration cobbled together this week the $25 million stopgap fund to issue loans of up to $75,000, to help small businesses tide over any SBA delays in the coming few months in approving loans. On Friday, it doubled the program’s size given the intense demand.

Ironically, DECD is funding the program from amounts being repaid by Small Business Express borrowers — a Great Recession legacy program giving a boost to beleaguered businesses in what the Wall Street Journal dubbed “The Great Cessation” of the coronavirus pandemic.

“The real focus here is on immediate liquidity and flexibility for our smallest businesses, because we realize how hard hit they are,” said David Lehman, commissioner of DECD, speaking Wednesday. “We anticipate these loans will be paid off when revenue comes back as the economy comes back to normal, or potentially by one of the federal loan programs — or by the private banks, as more credit is extended to the small business community.”

Includes prior reporting by Dan Haar.

Alex.Soule@scni.com; 203-842-2545; @casoulman