The revival of a government assistance program for small businesses got off to a rough start Monday, with lenders reporting being left out of the overwhelmed US Small Business Administration system amid a flood of loan applications and concerns as to when struggling businesses will get the financing they need. .
The SBA said “unprecedented demand” was slowing its loan processing platform and there was double the number of users accessing the system compared to any day in the first round of funding that ended on April 16. The SBA said in a statement that it had processed more than 100,000 claims from more than 4,000 lenders as of 3:30 p.m. New York time.
Shortly after the SBA The paycheck protection program restarted this morning with lenders reporting they could not access the system or were kicked out as they attempted to submit claims on behalf of small business owners, a declared Paul Merski of The Independent Community Bankers of America.
Rob Nichols, President and CEO of the American Bankers Association, said in a tweet that its member banks across the country “are deeply frustrated with their inability to access” the SBA system. He said the association had “raised these issues at the highest level” and that until they are resolved, the banks “will not be able to help more struggling small businesses.”
The problems echoed in the first round of the program, when lenders were repeatedly excluded from the lending platform. The initiative restarted on Monday with $ 320 billion in new funds after the initial $ 349 billion sold out after only 13 days. Some lenders had thousands of apps out of the box when the system restarted, fueling fears that the extra money would run out quickly.
JPMorgan Chase & Co. said so stopped taking new requests before the initiative relaunched on Monday, as it tried to overcome a backlog of requests already in its pipeline.
The second round of funding – similar to the first – has been hampered by vague guidelines and ongoing changes to the process. A senior banker, describing the process on condition of anonymity, said the SBA’s decision to allow lenders to submit bulk claims was unclear and came at the last minute.
The SBA said it informed lenders on Sunday that it would regulate the rate of requests in its E-Tran system, which means all lenders should be able to submit at the same rate. The pacing mechanism was designed to prevent a lender from submitting thousands of loans into the system at a time. A lender who exceeds that limit would be excluded from the system, a spokesperson for the agency said.
But with the SBA limiting requests to 350 per hour per lender, according to someone familiar with the matter, it could take days or even weeks to push through requests from each bank – extending the time it will take for small businesses. distressed need to get their funds.
Merski said lenders are frustrated because they don’t understand how the SBA handles claims, and the agency hasn’t provided a proper explanation. This raises concerns that borrowers may be left out, as success may depend on who is able to access the system before funding runs out again, he said.
“It’s a happy coincidence who comes in and who doesn’t,” Merski said. “There are serious issues that need to be resolved. “
The program allows loans of up to $ 10 million per borrower and aims to help small businesses affected by the coronavirus pandemic keep workers on their payroll. Loans become grants if businesses use them for payroll and approved expenses for two months.
Even before the first new request was processed on Monday, lawyers were concerned that the additional funding would also run out within days, not be enough to meet demand, and may not reach the entities that need it most.
The initiative, which was first launched on April 3, was marred by delays and problems after advice on how to deal with loans was only released the day before, and many the big banks weren’t ready to participate or withholding until the rules became clearer. Advocates have complained that many small mom-and-pop stores have been closed as outrage grew as large state-owned companies and large chains got loans.
Large companies, including Shake Shack Inc. and the operator of Ruth’s Chris Steakhouses got loans but returned the money after a backlash. A spokesperson for the National Basketball Association The Los Angeles Lakers said Monday the team qualified on a $ 4.6 million loan, but paid it off after apprenticeship funds were exhausted.
the American Hotel & Lodging Association, which had gotten special attention for program hotels after a last-minute lobbying campaign – even on Monday released a study suggesting that hotel owners could end up with a better cash position if they didn’t take the loans and close their doors instead.
ASB and The US Treasury Department sought to avoid pitfalls in the first round. they emitted new guidelines last week reaffirming that companies must certify that they have been affected by the pandemic and telling large companies with access to other capital that they should not apply – and that companies can repay their loans before May 7 without penalty. Hedge funds and private equity firms were told they were not eligible.
More than $ 2 billion from the first round has been refused or returned and will now be made available, SBA administrator Jovita Carranza said in a tweet Monday. Congress also set aside $ 60 billion for small financial institutions with $ 50 billion or less in assets to ensure better access for small businesses.
Yet the major banks, including Wells Fargo & Co. and Bank of America Corp. getting ready to submit a flood of loan applications that were not processed in the first round or have been accepted since then.
To ensure access to all of the more than 5,000 lenders approved to participate in the program, the SBA announced on Sunday that it was capping each bank’s loans at $ 60 billion and stepping up acceptance of applications while allowing lenders to submit them in batches – initially set at a low of 15,000 and revised Monday to 5,000 or more more that must be submitted by 9pm on Monday.
– With the help of Ben Brody
(Updates with SBA limiting requests to 350 per bank, per hour in ninth paragraph)