Hundreds of thousands of emergency small-business loan applications in limbo
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.”
James Ballentine, executive director of congressional relations and public affairs at the American Bankers Association, expressed hope that lawmakers would reach an agreement on a new round of funding as early as Thursday.
“Any lapse would be detrimental to so many small businesses,” Ballentine said.
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.
Before the coronavirus crisis hit, 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.”
“Given the success of PPP in getting money into the hands of small businesses quickly, we still believe that the best option is for Congress to appropriate additional federal funds as soon as possible,” Rob Nichols, the ABA's president and CEO, said in a Wednesday statement.
With most of the country on lockdown and entire industries such as hospitality, dining and retail shut down, government officials rushed to put the program in motion, even though crucial details including the interest rate, the language of the promissory note and guidance on the use of electronic signatures hadn’t been fully worked out.
Initial guidance for the program 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.”
Despite an unsettled start, demand has been enormous, forcing bankers to choose between proceeding without definitive guidance on key questions or abandoning hundreds of clients fighting for survival.
The $3 billion-asset Canandaigua National in New York “very deliberately said this is the spirit of the program. Let’s go ahead and get this money into the community ASAP," CEO Frank Hamlin said. "We’ll fight it out later to the extent people don’t back our play."
Canandaigua bankers have "been working around the clock," Hamlin added. "We’ve been taking this very seriously.”
Many community banks set up lending assembly lines to get loans out the door, stepping up efforts as the program neared its cap.
Washington Trust Bank in Spokane handled more than 3,400 applications over the program's first 10 days, eclipsing its total volume for all of 2019, said Jack Heath, the $7.2 billion-asset company's president and chief operating officer. Washington Trust has 50 “inputters” funneling loans into E-Tran, Heath said.
“We’ve gone to a 24/7 model,” Heath said. “We’ve got it up to a pretty good cadence.”
Easter Sunday was Washington Trust’s first day off since the program's launch. Even then, some employees had to be dissuaded from working, Heath said
“It’s nice to see the institution pulling together,” he added.
Canandaigua also threw out its traditional schedule, Hamlin said.
“We’ve had many evenings where people are working late, and certainly weekends,” said Charles Vita, Canandaigua's chief lending officer. “We try to rotate people, so we have some shifts going on. …Everyone has really stepped up. It’s a real tribute to our entire organization. I can’t think of an area that hasn’t been involved.”
Dobers did not provide detailed statistics for BBVA USA’s activity, but the company has processed up to 10 times its typical annual SBA volume since the program started.
BBVA USA 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.
“Most of the banks we interact with are doing some version of shift work,” said Sultan Meghji, the CEO of Neocova, a fintech based in St. Louis.
“Never before in the history of this country has a program of this magnitude been stood up in this fashion,” Ballentine 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 assets of $50 billion or less.
Hunt warned that attempts to earmark funds for certain groups or banks risked complicating the program.
“It’s taken a herculean effort for SBA to process this simplified system,” Hunt said. “If we start adding parameters, we’ll slow down the process.”