Hundreds of thousands of emergency small-business loan applications in limbo

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With the Paycheck Protection Program’s initial funds depleted, lenders are stepping up efforts to press for more money.

The Small Business Administration announced Thursday morning that it had committed all of the program's $349 billion, less than two weeks after the effort began. Lawmakers are debating a second round of funding that would add $250 billion to the program.

The SBA and the Treasury Department, the program's administrators, had said they would stop approving applications when the funding was expended.

That leaves more than 700,000 applications in limbo, said Richard Hunt, president and CEO of the Consumer Bankers Association.

“I believe we could need upward of $1 trillion to satisfy all the demand, but we need at least $250 billion as soon as possible,” Hunt said during a Wednesday conference call. “If Congress would just pass what we call a clean bill, that would be great.”

Credit union advocates have also pushed lawmakers to provide more funding for the program.

"The successful and popular PPP is vital to our economic recovery from the current pandemic and we encourage you to approve additional funding for the program as soon as possible," Brad Thaler, vice president of legislative affairs for the National Association of Federally-Insured Credit Unions, wrote in a letter sent to lawmakers on Wednesday. "The longer this pandemic goes on the more strain is being placed on vulnerable Americans."

The Federal Reserve announced just hours before the funding ran out that its liquidity facility for the program was fully operational and available.

The CBA has been urging the government to allow lenders to keep uploading applications into the SBA’s E-Tran system even if there is a temporary shutdown.

“Entering PPP loans into the system would ensure small businesses are able to receive immediate funds, without the continued backlog, when Congress approves additional funding,” Hunt wrote in a Wednesday letter to the agencies.

BBVA USA in Birmingham, Ala., plans to continue processing applications even if funds lapse, said Elizabeth Dobers, director of business banking at the $92.7 billion-asset bank.

“We’ll put the pedal to the metal and keep going,” Dobers said on the CBA's call.

Conceived by a group of Senators led by Marco Rubio, R-Fla., and Susan Collins, R-Maine, the program was included in the $2 trillion CARES Act stimulus program Congress passed and President Trump signed into law on March 27.

The Paycheck Protection Program, which began on April 3, is intended as a lifeline for small businesses. The effort, managed through the SBA's 7(a) program, offers loans of up to $10 million to businesses with 500 or fewer employees impacted by the coronavirus crisis.

Paycheck Protection loans are 100% guaranteed by the government and can be forgiven if businesses spend the proceeds on payroll and basic operating expenses.

Prior to the coronavirus crisis, the highest annual loan volume guaranteed under 7(a) was $25.4 billion in fiscal 2017.

“SBA has processed more than 14 years’ worth of loans in less than 14 days,” Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said in a joint statement issued on Wednesday. “The high demand we have seen underscores the need for hardworking Americans to have access to relief as soon as possible.”

With most of the country on lockdown and entire industries such as hospitality and retail shut down, officials rushed to put the program in motion, even though key details, like the interest rate, the language of the promissory note and guidance on the use of electronic signatures hadn’t been fully worked out.

Initial program guidance wasn’t released to lenders until April 2 — hours before the effort went live.

“We’re flying the plane and building it at the same time," Dianna Seaborn, director of the SBA’s Office of Financial Assistance, said during a conference call with lenders earlier this month. "Things change hourly.”

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Despite an unsettled start, demand has been enormous, forcing lenders to choose between proceeding without definitive guidance on key questions or abandoning hundreds of clients fighting for survival.

Dobers did not provide detailed statistics for BBVA’s activity, but the company has processed up to 10 times its typical annual SBA volume since the program started.

BBVA is one of the country’s most active 7(a) lenders. Through the first three months of the 2020 fiscal year, which began Oct. 1, the company had made 7(a) loans totaling $64 million, according to the SBA.

“We’ve commandeered every resource in the bank” for Paycheck Protection,” Dobers said.

Congressional Democrats have tied more funding to a request for money for hard-hit state and local governments and hospitals. They’re also seeking to allocate some Paycheck Protection money for borrowers in disadvantaged communities.

The Independent Community Bankers of America called on lawmakers to commit at least $62.5 billion of the proposed second round of funding to banks with $50 billion or less in assets.

NAFCU’s Thaler also requested that a certain portion of PPP funds be set aside for community institutions, including credit unions.

Many credit unions have large numbers of pending applications from small business members for PPP loans waiting to be processed and they don’t want their members to lose this opportunity as funding runs out,” Thaler wrote.

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Law and regulation Small business lending SBA Paycheck Protection Program Coronavirus Community banking