Lenders set to flood SBA with new PPP applications

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The Paycheck Protection Program ran out of money less than two weeks after its launch. It could dry up even faster the second time around.

Lawmakers appear close to approving another $310 billion for the stimulus program, which provides loans to small businesses so they can pay employees and other basic operating expenses. The Senate backed a second round of funding on Tuesday; the House is expected to vote as soon as Thursday.

By some estimates, the new Paycheck Protection funds could be gone as quickly as 48 hours after they become available. And a flood of applications could further strain a portal that struggled to handle the initial workload.

"We're concerned, given the demand we’ve seen, that [the proposed authorization] won’t be enough,” said Christopher Maher, president and CEO of the $10.2 billion-asset OceanFirst Financial in Toms River, N.J.

The Senate passed a $484 billion stimulus funding package by unanimous consent Monday. Along with Paycheck Protection money, it includes $75 billion for hospitals, $25 billion for enhanced coronovirus testing, $50 billion for the Small Business Administration's disaster loan program and $10 billion for Emergency Economic Injury Disaster Loan grants. The House of Representatives is expected to vote on the measure Thursday.

The initial $349 billion ran out in 13 days after its launch April 3, and bankers point to the fact that the the proposed amount is 11% less this time around. Plus more lenders, including fintech firms, have been approved to participate.

So bankers are already preparing to manage applicants' expectations.

“We’ve had to have some very difficult conversations with clients," said Brent Beardall, president and CEO of the $17.4 billion-asset Washington Federal Bank in Seattle. "I think undoubtedly we’ll be back in the same situation."

Nearly 5,000 lenders participated in the program's initial run. Businesses with 500 or fewer employees can borrow up to $10 million. Funds spent on payroll and basic operating expenses can be forgiven, while the interest rate for any unforgiven portions is capped at 1%.

Expectations are that lenders will have scores of applications ready to go when the SBA reopens its E-Tran platform.

“We’ve had time to refine our process,” said Frank Hamlin, president and CEO of the $3 billion-asset Canandaigua National in New York. “As we look at this new push that’s going to be coming through, we’re leaner and we know we can get things through the portal quicker.”

After a rocky start, the $9.1 billion-asset VyStar Credit Union in Jacksonville, Fla., fully automated its application process and sped up turnaround times, said President and CEO Brian Wolfburg. Vystar reported 442 approvals totaling $19.5 million.

OceanFirst had $110 million in applications ready when the portal closed on April 16. Maher said his team, which has fielded another 500 inquiries in recent days, plans to resubmit applications as soon as operations resume.

"Demand is very deep," Maher said.

The $18 billion-asset Atlantic Union Bankshares also continued to accept and process applications after the portal shut down. The Richmond, Va., company has 2,500 applications for about $500 million ready to upload to the SBA's E-Tran system when it goes live, said CEO John Asbury.

Atlantic Union, which struggled to process a few hundred loans a day when the program debuted, should be able to address its backlog in less than five hours after it resumes.

“We’ll be ready to go right out of the gate, and we’ll have a huge focus on getting as many loans into E-Tran as fast as possible," Asbury said.

Washington Federal also has 2,500 applications ready to go.

“Our waiting list is growing every day,” Beardall said. “The sprint hasn’t stopped for us."

While many kinks were seemingly worked out during the initial stage, bankers are worried a sudden flood of new applications could test E-Tran's capacity and durability.

It is also unclear if the portal will need to be adjusted to account for stipulations included in the Senate bill authorizing more funding. The bill reportedly earmarks $60 billion in loans for institions with less than $50 billion in assets, with half of the amount designated for banks and credit unions with less than $10 billion in assets.

The initial funding was approved on a first-come-first-served basis.

An SBA spokeswoman wasn't immediately able to respond.

“There's a degree of concern about exactly how they're going to operationalize” the set-asides, Asbury said. “How they're going to do that, I simply don’t know. We’re going to have faith it will work."

“I’m sure people at SBA are looking at each other and asking `How are we going to do this,’” Beardall said. “It’s certainly something I’d like to know.”

Bankers, for the most part, were content with the idea behind the designated funding.

“I view the intention of the ... carve-out as good,” said Charles Vita, Canandaigua’s chief lending officer. “Congress is trying to make sure the dollars get to the broad spectrum of small businesses across the country. … Everybody needs money, but certainly smaller businesses need it the absolute most. They’re the least capitalized.”

Fintechs were excluded from the carveouts even though most fall below the asset-size thresholds in the Senate bill.

Ryan Metcalf, head of U.S. regulatory affairs at Funding Circle, said he was “dumbfounded” by the exclusion.

“If Congress really meant for this money to go to the smallest of small businesses, they could have mandated the set-aside was for loans under a certain dollar amount or for businesses with a certain number of employees,” Metcalf said, noting that nearly two-thirds of his company's loans were for less than $50,000.

“They decided certain institutions could serve certain customers,” Metcalf added. “It doesn’t make sense."

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