Start of small business lending program is called ‘disaster’
■ The Paycheck Protection Program was supposed to provide loans to small businesses. It is now being met with a host of issues — including big banks, such as Chase and Bank of America, writing their own rules.
Small businesses depending on promised federal money to keep them afloat are now finding themselves locked out of muchneeded support, thanks to bureaucratic government tangles and confusion at the banks designated as conduits for the stimulus support.
Under the $2 trillion CARES Act passed by Congress last week, $350 billion was set aside for small businesses under what is being called the Paycheck Protection Program. The idea was that companies with 500 or fewer employees could go to a bank that already participates in lending programs with the Small Business Administration and quickly apply for up to $10 million in interest-free government loans, some of which could be forgiven if they could prove they retained employees. But the program has quickly hit a snag. The SBA, which processes about $30 billion of loans in a year, is under pressure from the U.S. Treasury Department to move quickly on the $350 billion program. Some banks have been caught flat-footed, with little direction from the government. To move forward, they are setting up their own rules and criteria for giving out loans.
As a result, many small businesses in desperate need of cash are unsure when they’ll receive their funds.
“Right now, it is a disaster. It hasn’t been working,” said Paul Merski, executive vice president of congressional relations and strategy at the Independent Community Bankers Association. “That’s the biggest complaint I am getting all day from banks. They can’t get through [to the government.] That should have been up and running and tested on the day that they
launched the program. It’s disappointing that the system isn’t working.”
Juan Vega, owner of BMP Technical Support in Hialeah, fits the criteria of a small business in need. Vega and BMP employ eight workers, who perform complex, aviation-maintenance operations. But Vega had to lay off those employees and effectively shut down the firm as the coronavirus crisis brought business to a halt.
To come back online,
Vega is seeking $96,000 from a mid-size regional bank. But Vega says the documentation that he is being asked for by the bank, like his most recent income statement, doesn’t make sense, because the quarter hasn’t even closed.
“The government doesn’t even have that form yet,” he said.
The bank requirements are at odds with the spirit of the stimulus bill passed by Congress, he said.
“If the government’s objective is speed and guaranteeing the stability of businesses, then the need for regular underwriting criteria and a detailed application should not be necessary.”
Logging onto Chase’s dedicated website for applying for a loan reveals a slew of requirements that might deter customers. Among other things, applicants must have owned a Chase Business checking account since at least Feb.
15, 2020. An applicant also is prohibited from having already sought a loan from another financial institution.
John Baer, managing director for enterprise-risk solutions at Moody’s Analytics, agreed the system isn’t yet functioning smoothly. “[Banks] are scrambling to adapt to the situation,” he said. “They’re trying to figure out how to get clients these loans ... a lot are moving quickly to rally their own internal processes [while] staying close to the government’s specific guidelines around the program.”
The program is nevertheless being hailed by the Trump administration.
On Friday, the U.S. Treasury Department said that nearly $1 billion was going out the door already through applications made mostly by community banks.
Within a few hours, President Donald Trump’s reelection campaign sent out emails looking past the problems and touting the first delivery of funds.
“As of noon on Friday, nearly $1 billion in forgivable Paycheck Protection Program loans has already been processed — the vast majority by small community banks — for small businesses across the country to keep workers on their payrolls,” the campaign email noted, with a link to Treasury Secretary Steven Mnuchin’s Twitter feed.
On Twitter, Mnuchin said big banks had taken applications and would begin distributing funds soon. That sparked a slew of tweets from people saying they could not access the program.
“No Steve. No they’re not. We’re getting locked out of this. I’ve spoken to 4 different banks. I have the application in my hand, ready to go out but NOBODY WILL TAKE IT,” tweeted Rich Weinstein, a Philadelphia investment adviser who became a conservative celebrity after criticizing the Affordable Care Act.
By late in the afternoon, Mnuchin had tweeted out a number twice as high.
“UPDATE over $1,800,000,000 #PPPloan now processed by @SBAgov mostly all from community banks,” the secretary tweeted. “Big banks taking in large amounts but not yet submitted in these numbers!”
ADDITIONAL REQUIREMENTS
Florida Sen. Marco Rubio, a Republican and one of the architects of the PPP, struck a more sober tone Friday. Rubio said the Small Business Administration issued initial lending guidance that did not reflect the intent of lawmakers when they granted $350 billion in federal loans. The money, designated for small businesses, does not have to be paid back if used for payroll and essential expenses.
The guidance was simplified on Thursday night, just before the application process was supposed to go live, Rubio said.
“When we wrote that originally it was a different time,” Rubio said on
MSNBC on Friday morning. “We started to realize that no business in America will be un-impacted by it.”
Rubio said he spent the previous 36 hours working with Mnuchin to issue the updated guidance to banks just hours before the applications went live.
“I think that got fixed,” Rubio said. “I think Secretary Mnuchin did a good job.”
But many banks have added additional requirements for small businesses applying for a loan. Bank of America told small businesses Friday that applicants must have a loan account or business credit card with the bank to apply.
Rubio said that wasn’t what Congress intended.
“The requirement that a #SmallBusiness not just have a business account but also a loan or credit card is NOT in the law we wrote & passed or in the regulations,” Rubio tweeted. “This is a Bank of America requirement, not a govt one. They should drop it. This money is 100% guaranteed by fed govt.”
Rubio also noted that many big banks received billions in taxpayer bailouts after the 2008 financial crisis and said it’s now time for them to step up as middlemen to help small businesses get money fast from the federal government.
“Let me just say this as nice as I possibly can. Please don’t be a bunch of jerks,” Rubio said in a video message posted on Twitter. “When you needed the country to help you, they did. Now, the country needs you to help them, and we’re paying you to do it. It’s the government’s money, it’s the taxpayers’ money.”
Rubio also said he’s worried that certain passthrough entities and LLCs controlled by big businesses could apply for money that’s intended to go to mom-andpop businesses. But he said the alternative, taking more time to pass a bill with more regulations, was not a possibility in the middle of a pandemic.
“I will not tell you this is going to be perfect, neither the rollout or the implementation,” Rubio said. “I can tell you the alternative would have been catastrophic. We had to do something.”
‘NATURAL SELECTION’
Jay Sakalo — a partner at law firm Bilzin Sumberg and head of its business finance, restructuring and corporate practice group — said wouldbe applicants to the program continue to run into issues.
One example: Many businesses with outstanding loans have restrictions on incurring additional debt. Even though the PPP loans effectively become grants once they are forgiven, the language reflecting the loan as such is tying up many firms.
“We have had borrowers in the [commercial-mortgage industry] that have approached our clients about requests to allow them to take on this additional debt as part of a request for other accommodations,” he said.
“Given how quickly this was put together, it’s not the simplest thing to work through,” he said.
Even if the application for funds is approved for a bank, it doesn’t mean it is getting into the hands of businesses on Main Street yet, said Ami Kassar, CEO of the Pennsylania-based small business loan advisory firm Multifunding.
“I think they are trying to make a Herculean effort here, but if the businesses are borrowers who don’t have a relationship with a bank, they are going to get left on the street here,” he said.
Even for existing customers, some banks appear to be prioritizing some clients over others, according to Joe Hernandez, partner and chair of the real estate group at Weiss Serota Helfman Cole and Bierman.
“One thing that everyone is concerned about is, ‘Am I going to be given consideration or am I going to be sent to the back of the line?’ ” Hernadez said.
He added: “It’s looking like natural selection.”
Vega, the repair-facility owner, says businesses like his can only hold on for so long.
“If there’s this kind of bottleneck, is it reasonable to expect the money in two weeks? Four weeks? Six weeks?” he asked. “If it’s anything beyond three or four weeks, it’s going to be like putting an oxygen bottle on a cadaver.”
‘‘ LET ME JUST SAY THIS AS NICE AS I POSSIBLY CAN. PLEASE DON’T BE A BUNCH OF JERKS. WHEN YOU NEEDED THE COUNTRY TO HELP YOU, THEY DID. NOW, THE COUNTRY NEEDS YOU TO HELP THEM, AND WE’RE PAYING YOU TO DO IT. IT’S THE GOVERNMENT’S MONEY, IT’S THE TAXPAYERS’ MONEY.
Sen. Marco Rubio, R-Fla., one of the architects of the PPP, about big banks holding up loans to small businesses and noting that many big banks received billions in taxpayer bailouts after the 2008 financial crisis