Confusion surrounds launch of $349B in small-business loans

Banks and industry groups say a new rescue lending program for small businesses is off to a rocky start and may fall far short of what firms need to stay afloat during the economic fallout from the coronavirus.

The Treasury Department and Small Business Administration (SBA) on Friday rolled out applications for small businesses to receive forgivable loans for payroll and other basic expenses amid the economic toll of the coronavirus.

But banks, credit unions and other lenders say the $349 billion program lacks clear guidelines to handle a looming wave of loan applications that could overwhelm the system while leaving some firms in the lurch.

“The guidance was released hours before this program is set to begin and there are still a number of unanswered questions which will very likely complicate quick fulfillment of these critical loans,” said Jim Nussle, president and CEO of the Credit Union National Association, a trade group for credit unions.

The amount allocated for the Paycheck Protection Program (PPP) is more than 12 times the $28.1 billion in loans originated by the SBA in all of 2019, threatening to overwhelm agency staffers.

Treasury and the SBA opened the lending program one week after President Trump signed into law the record $2.2 trillion economic rescue package that created it, giving lenders little time to prepare for the surge in applications.

The launch capped a frantic week for Treasury Secretary Steven Mnuchin, who has been imploring businesses with fewer than 500 employees to apply for loans through their banks or credit unions while insisting that the government will be able to handle a surge in applications.

“I want to make sure this part of the economy is ready and intact when we’re ready to reopen,” Mnuchin said at a White House briefing Thursday. “Now, let me just be clear, that doesn’t mean everybody is going to get their loan tomorrow.”

Hundreds of thousands of small and mid-sized firms are expected to compete for the PPP loan pool as the coronavirus pandemic forces businesses around the country to shutter. More than 10 million Americans have applied for unemployment benefits in the past two weeks, according to data released Thursday, as firms were forced to lay off employees.

While the money for loans will come from the federal government, bank and credit union employees still have to vet, approve and process the applications.

Some banks and credit unions have already been inundated with initial applications, and experts expect the program’s funding to be tapped quickly by businesses with resources and connections to navigate the backlog.

Mnuchin sought to quell concerns about the program’s launch with frequent Twitter updates on the amount of money already lent under the program. He also touted Bank of America’s approval of millions in loans through Friday.

Yet Bank of America drew fire from critics like Sen. Marco Rubio (R-Fla.), who authored the PPP program, for restricting loans to pre-existing business lending customers to help lessen the flood of applicants.

“Let me just say this as nicely as I possibly can: Please don’t be a bunch of jerks, OK? When you needed the country to help you, they did,” Rubio said in a Friday video, referring to the 2008 bank bailout. “Now, the country needs you to help them, and we’re paying you to do it.”

The U.S. Chamber of Commerce released a poll Friday that found that 24 percent of small businesses say they will close permanently within two months or less due to the economic fallout of the coronavirus pandemic.

“There’s going to have to be some patience all around. I’m really impressed with how quickly America’s financial institutions have responded in kind of stepping up and making sure that they’re helping small businesses across the country,” Neil Bradley, Chamber chief policy officer, said on a call with reporters on Friday.

Congress is already looking at a phase four coronavirus relief package that would build on the $2.2 trillion in aid already approved and business advocates are looking for that to fill gaps identified in the implementation of this program.

“Every single lawmaker we talk to indicates — none of them want to be in the position that there are 10 more small businesses in line when the program has to close,” Bradley said. “The idea that we’re going to leave some people behind, that Congress wouldn’t fix that, I don’t think that’s going to happen.”

Other business advocates expressed concerns that under the Treasury Department’s guidance for the program, only 25 percent of the forgivable amount can be spent on non-payroll costs, which could be a major issue for small businesses.

“It showed up in the Treasury guidance documents and it’s not in the statues, this is an additional layer of complication,” said John Lettieri, CEO of the Economic Innovation Group. “This is a program that includes a strong incentive to maintain your employees throughout the crisis. But it’s not much good to take on a loan to pay employees if you can’t also cover your other costs, rent, mortgage, utilities.”

“I’m expecting for them to have to authorize a much bigger amount than the $350 billion that they originally set aside. That could go, literally, in a couple of weeks,” he added.

Questions over loan refunds may also cause lenders to not participate in the program immediately, said Brock Blake, founder and CEO of Lendio, a small-business marketplace.

He said lenders may wait for another round of funding from the next coronavirus relief package.

“If a lending institution has $100 million to lend, that $100 million could go in one day. What if they only served one-third of their customers?” he asked.

For some small-business owners, the government’s efforts with the lending program are seen as inadequate for the task at hand.

“You have an absolute economic crisis right now where businesses are closing, people are being laid off, and there’s no end in sight and there’s no relief in sight,” said Julie Verratti, a former SBA policy adviser and co-founder of Maryland-based Denizens Brewing Co.

“These programs that have been created — they’re well-intentioned, they may be slightly helpful, but it’s like trying to put a Band-Aid on top of somebody’s getting over a limb chopped off,” she added.