Northwest Arkansas Democrat-Gazette
Analysis: Big firms got loans first
SBA numbers show connections to major bank were pivotal
NEW YORK — Ever since the U.S. government launched its emergency lending program for small businesses April 3, there have been complaints that bigger companies had their loans approved and disbursed more quickly.
There is now evidence to back up those complaints.
An Associated Press analysis of the Small Business Administration’s $659 billion Paycheck Protection Program shows that nearly a third of the loans approved in the program’s first week ranged from $150,000 to $10 million, the maximum allowed. In a second round of funding that began April 27, such loans made up just 7.4% of the total.
The average loan size fell from $257,240 on April 10 to about $105,000 as of July 17, according to the SBA.
The PPP made low-interest loans available to any business — or any franchisee of a business — with fewer than 500 employees. The loans are to be forgiven if most of the money was used to keep employees on the payroll.
Larger companies with connections to major national or regional banks got priority treatment in the program’s initial phase, the data shows, while many smaller businesses said they were turned away because the banks required them to have a checking account, a credit card and a previous loan to be considered.
Some small businesses submitted an application but then heard nothing. Small restaurants, retailers and other companies most in need were left waiting and unable to pay their employees, landlords or vendors. Many learned not from their bank but via news reports that the initial $349 billion in funding had run out in less than two weeks.
“The program was structured to take advantage of existing banking relationships that favored established businesses,” said John Arensmeyer, chief executive officer of the advocacy group Small Business Majority. “It was not
designed for very small businesses.”
It’s not clear how many small companies have failed because of the pandemic. A survey conducted for the National Bureau of Economic Research by researchers at Harvard University, the University of Chicago and the University of Illinois found 2% of small businesses surveyed had shut down permanently in March, just after the pandemic hit the U.S. In theory, that means 100,000 small businesses closed their doors before the loan program started.
Andrew Cao applied for a $72,500 loan for his digital marketing company with 10 full- and part-time employees the day after the first round opened.
He submitted his application to Bank of America, where his company had been a customer for 10 years. Cao got two phone calls telling him he should submit his documentation, which he had already done, but could get no information on his loan.
“When we heard the funds were exhausted, I said, ‘Are you serious?’ We tried to do everything we could — we submitted papers, contacted the bank, and then nothing,’” says Cao, co-owner of Motoza, based in Austin, Texas.
Cao submitted an application through a small local bank two days before the first round ended. Motoza got its loan a few days after the program’s April 27 reopening.
The PPP, which still has more than $130 billion available, is a key part of the government’s coronavirus relief plan. It’s credited with supporting the job market when millions of workers have been laid off. The data released by the SBA on July 6 shows that by June 30, 85% of the PPP loans had been for less than $150,000. Still, the AP analysis shows that early on some of the nation’s biggest banks were quickly approving loans for larger customers before ramping up their volume of smaller loans. In the first week, 27% of the 4,231 loans that JPMorgan Chase made were above $1 million. The nation’s largest bank and the biggest PPP lender through June 30, Chase processed 243,427 loans in the second round of funding; only half a percent were $1 million or more.
Among other big banks, nearly 18% of the 1,185 loans TD Bank made the first week were above $1 million, as were 13% of Truist’s 7,143 loans. PNC made just 675 loans in the first week, but 40% were above $1 million.
At Chase, each of four divisions handled their clients’ loans separately, spokeswoman Patricia Wexler said. That included its commercial banking division; among its customers are larger small and mid-size businesses.
“There was no prioritization of one business line over another. Each business processed applications generally sequentially in the order in which the clients applied,” Wexler said.
Truist spokesman Kyle Tarrance said, “Applications were handled through a single application portal made available to clients on a firstcome, first-served basis, without any preference given to any client, including larger or more affluent clients.”
PNC said in a statement, “Several factors may have affected the processing speed of individual applications. For example, loans that were incomplete necessarily took longer to process.” The bank also noted that the SBA did not begin accepting applications from self-employed individuals and independent contractors, whose loan amounts were among the smallest, until a week into the program.
TD Bank did not immediately respond to a request for comment.
Bigger loans are typically prepared by a team of finance officers and accountants using sophisticated software, while small companies might not have such polished applications that take more time to review. Familiarity with well-established customers can expedite the process. And from the banks’ perspective, it’s good business to take care of the biggest customers.
Although the evidence points to big loans going to the head of the line at banks, it’s not clear what happened once applications entered the SBA system. The agency did not respond to a request for comment. Information for this article was contributed by Meghan Hoyer, Angeliki Kastanis and Justin Myers of The Associated Press.