BofA offers emergency loans to borrowers first, freezing out depositors

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In the initial hours of a government-backed emergency loan program, Bank of America accepted applications only from its existing small-business borrowers, shutting out customers that have checking accounts but not loans.

The narrow rules angered ineligible small business customers, and by Saturday morning BofA had loosened its criteria. Customers that had small business checking accounts as of mid-February, but no credit products, can now apply for relief as long as they do not have a borrowing relationship with another bank.

On Friday, the Charlotte, N.C., company's eligibility criteria froze many small businesses out of a $349 billion program that is meant to provide relief from the economic crisis brought on by the coronavirus pandemic.

If other banks adopt Bank of America’s initial approach, the number of small businesses that are eligible to apply for loans in the program’s early days will shrink even further. Many small-business owners are concerned that if they cannot apply for relief soon, they will not receive funding because the program operates on a first-come, first-served basis, and application volume is expected to be enormous.

“If you borrow with another bank, please, go back and work with them,” BofA CEO Brian Moynihan said Friday.
“If you borrow with another bank, please, go back and work with them,” BofA CEO Brian Moynihan said Friday.

BofA Chairman and CEO Brian Moynihan said in a CNBC interview on Friday that the bank has 1 million business customers with borrowing relationships, and that its first priority is getting those customers through the system. The bank said that small-business customers will qualify to apply if they have a corporate credit card or another business borrowing product at BofA.

Moynihan said that Bank of America is encouraging business customers that have lending relationships with other banks to apply through those institutions.

“If you borrow with another bank, please, go back and work with them,” Moynihan said. “They’re your core bank, and they know you the best and can process you the fastest.”

But Moynihan did not address what recourse exists for small businesses that do not rely on credit at all.

In a video posted to Twitter on Friday morning, Sen. Marco Rubio, R-Fla., expressed outrage that big banks are putting “crazy restrictions” on eligibility for the funds. He did not mention Bank of America of any other bank by name.

“Let me just say this as nicely as I possibly can,” Rubio said after recalling the federal assistance that banks received in 2008. “Please don’t be a bunch of jerks, OK? 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. And it’s the government’s money. It’s the taxpayers’ money. So let’s all do our part please.”

The Paycheck Protection Program is part of the $2.3 trillion stimulus package enacted a week ago in response to the coronavirus crisis. The program will provide government-guaranteed small-business loans of up to two and a half times a company’s monthly payroll, which can be fully forgiven if the funds are used payroll and certain other purposes.

Banks and credit unions that take and approve applications will receive 1% interest and processing fees of 1% to 5%.

Program guidance that was released by the Treasury Department on Thursday states that participating banks and credit unions should continue to follow their existing Bank Secrecy Act protocols when making loans under the program to either new or existing customers.

Because of those protocols, and because banks already have information about their customers, they should have an easier time approving applications from those existing clients. But the Treasury guidance does not make a distinction between existing customers that have a lending relationship and those that only have a deposit relationship.

Under the program’s terms, banks have a financial incentive to help their own existing borrowers first, since small businesses that go out of business will be unable to repay their debts.

Bill Halldin, a Bank of America spokesman, said Friday that the bank structured its process in the way that it did in order to speed up approvals.

“That’s why we’re doing this,” Halldin said. “Any suggestion otherwise is wrong.”

BofA is only accepting applications online. The bank received 85,000 applications before 6:30 p.m. Eastern on Friday, Halldin said.

Bank of America’s initial decision to exclude small businesses that do not currently borrow from the bank drew outrage from some of the bank’s customers.

“It just seems like competent business owners are being punished for running their businesses well,” said LeeAundra Keany, the founder of a small Los Angeles-based firm that provides training to corporate leaders in public speaking and engaging with the media.

Keany said that she founded her business more than 20 years ago and has been a Bank of America customer for many years, but she does not have a business credit card with the bank.

She also said that four customers have already canceled business with her firm amid the COVID-19 pandemic.

“This is going to be pretty devastating,” Keany said. “We squeaked by in ’08, but that was by the hair of our chinny chin chin.”

Stefan Muehlbauer, the CEO of a Naples, Fla.-based consulting firm, said that his company has also been a Bank of America customer for many years. The firm, which has two full-time employees and does a lot of cross-border business, began making contingency plans for coronavirus some time ago.

“I just didn’t realize that my contingency plan would fall apart, not having a credit card,” Muehlbauer said. “I guess we should have jumped into the great American pastime of collecting credit cards.”

This story has been updated to add the number of applications BofA received before 6:30 p.m. Eastern on Friday and with new information about how the bank plans to handle applications from customers that do not have borrowing relationships.

This story has been updated again to reflect the changes that BofA made to eligibility criteria following its initial rollout.

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Small business lending SBA Coronavirus Bank of America Brian Moynihan Law and regulation