Bank rules stymie applicants eager for loans amid outbreak
Friday was supposed to be a day of relief for smallbusiness owners hurting from the coronavirus pandemic, as $349 billion in federal loans came up for grabs. Instead, it turned out to be frustratingly chaotic.
Banks didn’t get clear guidelines from the federal government until Thursday, a day before the loan program was supposed to open for business. The lenders struggled to put up online applications. Business owners decried strict measures banks put in place. Fraud and whether banks would be liable for it were major concerns.
The Small Business Administration asked banks to help it lend $349 billion under a new Paycheck Protection Program to small businesses as part of the $2 trillion stimulus package signed last week.
Banking professionals widely panned the rollout. Some said the Trump administration hadn’t shared a copy of the application until Thursday evening. They also said the administration had unrealistically stoked expectations. The
SBA and Treasury Department didn’t respond to requests for comment from The Chronicle.
“Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running,” Richard Hunt, president of the Consumer Bankers Association trade group, said in a statement.
Bank of America and Chase were among the large banks that began accepting applications Friday. Bank of America is accepting applications only from smallbusiness owners who currently have both loans and deposit accounts with the bank. That means some current customers are ineligible.
“We have been a Bank of
America customer for 20plus years. I can’t believe that they are shutting us out of this program,” said Sam Singer, president of Singer Associates, a public relations firm in San Francisco.
Singer, who employs 18 people, said he does not have any loans with them. He said he’s excluded from applying for a loan under the program and is now switching most of his business to Bank of the West, which he says has been “tremendously helpful, unlike Bank of America.” He criticized the Charlotte bank for not considering businesses that had operated without needing loans.
Chase is accepting loan applications only from current customers who have business checking accounts in active use since Feb. 15. Wells Fargo and Citibank did not have online portals for applications as of Friday afternoon and told customers they were not ready to accept applications.
Christopher Thornberg, founding partner of research firm Beacon Economics in Los Angeles, said the hesitation of bankers is understandable. He said the industry is already under heavy scrutiny, particularly due to regulations passed in the wake of the last recession, and wary of lending money without clear rules.
“Here, more or less, the administration is basically saying, ‘Please start recklessly lending,’ ” Thornberg said. He said it’s not in the nature of large banks, whom he described as “a conservative bunch that adapt slowly,” to rush to provide hundreds of billions of dollars in loan relief to small businesses.
Thornberg said the loans will be slow in coming as a result.
“It’s the natural consequence of rushing to do something that you think is helpful but not actually spending the time to figure out what devils are in the details,” he added.
The move by some banks to include only existing customers as a requirement for eligibility will exclude a large portion of the people who need the funds, said Grant Huxham, owner of HCW & Associates, a business consultancy practice in Santa Monica.
“The current situation has smallbusiness owners fearful of losing employees and putting food on the table,” Huxham said. “My clients don’t know what to do because there’s a lack of clarity around this loan process.”
Part of the urgency in getting applications up and running is a loanforgiveness provision attached to the federal program. Some or all of the loans will be forgiven by the SBA, taxfree, as long as employers retain employees for eight weeks after the loan origination and use the money for expenses such as payroll costs, mortgage interest or rent, and utility payments. The deadline for the loan application is June 30.
Sen. Marco Rubio, RFla.,
“The administration is basically saying, ‘Please start recklessly lending.’ ”
Christopher Thornberg, founding partner of research firm Beacon Economics
chairman of the Senate Committee on Small Business and Entrepreneurship, sharply criticized Bank of America on Friday on Twitter for imposing strict requirements on loan recipients. The senator, who helped craft the Paycheck Protection Program, pointed out that Bank of America received a bailout following the 200708 financial crisis. He pointed out that the bank’s requirement that customers have an existing lending relationship — a loan or a credit card — was not part of the law.
President Trump and Treasury Secretary Steve Mnuchin praised the program’s introduction on Twitter on Friday. Mnuchin said the government had processed $1.8 billion in loans by the afternoon, “mostly all from community banks.” That figure is 0.5% of the amount allocated to the program.
Trump wrote on Twitter, “Great job being done by @BankofAmerica and many community banks throughout the country. Small businesses appreciate your work!”