⏩ Banks step up to offer relief for businesses.

The onset of the coronavirus is hitting different businesses in different ways, but for a business owner who closed on a commercial loan in the last nine months, these are especially anxious times.

A dramatic reduction in income makes outstanding loan payments hang over a business owner’s head like sword of Damocles.

Many Connecticut banks already have stepped forward to reassure their customers they recognize the hardships customers are facing because of the impact the coronavirus has had on economic activity.

“Our bank, and the industry as a whole, entered this situation in a position of financial strength,” said David Glidden, president and chief executive officer of Middletown-based Liberty Bank. “I think it is incumbent upon our industry to do whatever it can to help our customers and the businesses we serve throught this time of uncertainty.”

John Ciulla, Webster Bank’s president and chief executive officer, said the Waterbury-based bank has a “long history of supporting our customers in times of need.”

“Webster is committed to providing financial flexibility to the individuals, small businesses and corporations that we serve,” Ciulla said.

Some of the flexibility he spoke of includes:

⏩ Payment deferrals on personal loans and small business loans, based on need.

⏩ Expedited Small Business Administration loan applications for qualified businesses impacted directly or indirectly by the pandemic, including vendors or other external business partners.

⏩ Waived penalties for early CD withdrawals up to $25,000.

KeyBank offer similar flexibility to its business customers and has a whole section of its website devoted to coronavirusdriven initiatives.

Glidden said Liberty Bank will defer commercial loan payments for up to six months depending upon the financial situation a business is facing. The bank is even honoring the terms of loan commitments that it made even as the spread of the coronavirus to the United States became more obvious.

“If it was in our pipeline, we are honoring that commitment,” he said.

Another option Liberty Bank has to offer its commercial customers includes extending larger amounts of credit than the business may previously have had in place. But Glidden said not many business customers are taking advantage of that option yet.

And if the economic impact of the coronavirus — and what it does to a the ability of a business to return to profitability — lasts longer than six months?

“Our focus is going to be to bet on the customer (and the ability to repay the loan),” Glidden said. “They chose us as their bank and we have an obligation to support them.”

A potential problem for the banks?

John Carusone, president of the Bank Analysis Center, a Hartford-based industry consulting firm, said “a bank can hold off on collecting payment on its loan for some time, but not forever.” Typically, a bank can offer loan forbearance for 60 days, he said.

Because of requirements that banks maintain a certain level of cash on hand, having too many loans in arrears can create a problem for an individual bank. If cash on hand falls below a certain percentage of a bank’s total assets, state banking officials must step in and seize the financial institution, he said.

Bank seizures occurred regularly during the recession of the early 1990s in Connecticut. A report by the Federal Deposit Insurance Corporation found that 22 percent of the banks in the state failed during the three-year period from 1991 to 1993. And over a broader period, between 1989 and 1996, 42 banks were declared insolvent in Connecticut.

Glidden said he doesn’t believe a scenario similar to the one in the early 1990s will repeat.

“A lot of those failures were driven by commercial and residential loans,” he said. “A lot of banks by then had gotten too careless in assessing the value of those loans. And the industry is in a much, much healthier position than it was back then.”

An additional safety net for businesses

Carusone said some of the businesses now facing the threat of financial difficulties may have had the foresight to buy business interruption insurance. That type of insurance, also known as income interruption insurance, covers the loss of income that a business suffers after a disaster.

Glidden said whether a business has income interruption insurance is a factor that Liberty Bank considers when making a business loan. Many of the bank’s commercial loan customers have some form of business interruption insurance, he said.

But as a growing number of businesses across the country are finding out the hard way, even having that kind of policy is no guarantee that they will be able to collect.

The problem of businesses being unable to collect on their income interruption insurance already has become so acute in New Hampshire that it came up in a conference call that Gov. Chris Sununu held with state business leaders March 20.

Eireann Sibley, communications director for the New Hampshire Insurance Department, told the Foster’s Daily Democrat newspaper that viral or bacterial outbreaks normally are excluded from business interruption insurance policies. Sibley said insurance carriers began to exclude viral or bacterial outbreaks from standard coverage after the SARS outbreak in the early 2000s.

And a pair of Native American tribes that operate casinos have filed a lawsuit seeking to get judicial rulings regarding whether their business interruption coverage will be honored.

Michael Burrage of Whitten Burrage, an Oklahoma City law firm, told the Oklahoman newspaper last week that the Chickasaw and Choctaw nations have filed separate lawsuits against several insurance companies.The insurance companies have not specifically denied that these are covered losses at this point, Burrage said, but such denial of coverage has taken place in Louisiana and other locations.

Lawmakers in Massachusetts already have filed legislation that would that require insurance companies to approve business interruption claims that are based on losses suffered as a result of the coronavirus. And New Jersey lawmakers are considering similar legislation.

But David Sampson, president and chief executive officer of the American Property Casualty Insurance Association, a Washington, D.C., trade group for that segment of the insurance industry, cautioned against such legislative action.

Sampson said “these types of proposals could have dramatic repercussions for families, individuals, motorists and businesses, potentially compromising the financial ability of insurers to meet their existing promises.”