Ounce of prevention was no pound of cure for PPP 2.0

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Many industry lenders were braced for a rocky start to round two of the Paycheck Protection Program — but their preparations were rewarded with renewed frustration.

As problems stretched into Monday afternoon, a chorus of complaints directed at the Small Business Administration grew louder.

"We, just like all banks, have worked hard since the first round of funding closed to process applications in our backlog, take in new applications and be ready for the second tranche of federal funding to open," BBVA USA Executive Director of Business Banking Elizabeth Dobers said in an emailed statement.

"Our goal was to be ready to input as many applications as we could before this second round of funding was depleted," Dobers added. "Unfortunately, the SBA E-Tran system ... has been very unstable all day today. This has left us with applications in hand and no way to process them."

The president of the American Bankers Association, Rob Nichols, echoed those sentiments.

“Our member banks across the country are deeply frustrated at their inability to access SBA’s E-Tran system,” he tweeted. “We have raised these issues at the highest levels. Until they are resolved, America’s banks will not be able help more struggling small businesses.”

An SBA spokeswoman said bankers had been warned Sunday that the system would be regulated so that all lenders would submit applications at the same rate per hour.

"The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-Tran system," the spokeswoman said. "If a lender goes above the pacing limit they will get timed out.”

Official figures were not available immediately, but the SBA was said to have processed more than 100,000 PPP loans by midafternoon as it grappled with demand that far exceeded the volume typical of its traditional programs.

Given the large number of applications lenders already had in queue on April 16, when Paycheck Protection’s initial $349 billion appropriation was exhausted, most had prepared themselves for slow going.

“The first couple of hours will dictate the day, for sure,” Everett Sands, CEO of Lendistry, a Los Angeles community development financial institution fintech, said Sunday night.

“People have had time to gear up and get ready. I assume E-Tran will crash.”

Sands' word were prescient. Armed with a fresh infusion of $310 billion, the PPP portal reopened Monday morning. It didn’t take long for the E-Tran operating system to bog down. Within an hour, frustrated lenders were complaining about glitches, hang-ups and rejection notices, much like the ones that marred PPP’s first phase.

In an effort to head off a traffic jam of applications, the SBA announced Sunday it was allowing each of the nearly 5,000 lenders participating in the PPP to upload one bulk submission. Initially, the agency set a 15,000-application minimum for the bulk submission, later reducing the threshold to 5,000.

The bulk submission announcement sparked renewed criticism from lenders at smaller institutions and advocates for small businesses that the playing field had been tilted in favor of larger institutions with longer queues.

Greg Ott, CEO at Nav, a fintech that matches borrowers with their best funding options, said the SBA’s bulk submission plan would inevitably put larger borrowers in a better position. “It’s definitely serving the largest of lenders, and the largest of lenders generally serve the largest of borrowers,” Ott said.

The government’s intentions for PPP “are strong,” Ott added, but in tapping banks to lead it, officials made it tougher for smaller firms that have typically relied on nondepository lenders to meet their credit needs.

“Small-business owners, who are hanging on by a thread, are asking, `Can I count on this money? Can I get this money?” Ott said.

Chris Giamo, head of the commercial bank for the $338 billion-asset TD Bank, said Monday that TD had about 30,000 applications in its queue. A spokesman for Citizens Financial Group in Providence, R.I., said his $177 billion-asset company had more than 15,000 applications.

During the 10 days the program was offline, while Congress negotiated the details of a second funding authorization, TD “worked very closely with the customers that were in queue, making sure those applications were complete, accurate and ready to be processed,” Giamo said. “In addition, we did reopen our digital application to accept new applicants who may not have applied in phase one.”

The average dollar size of the applications in TD’s queue was about $75,000, less than the $230,000 average from the first phase, Giamo said. Before the program's initial funding ran out, TD approved nearly 26,000 applications for $6.1 billion.

Synovus Financial in Columbus, Ga., had processed over 8,300 applications totaling about $2 billion in the first round of funding. The $51 billion-asset company is now working through a higher number of applications totaling about half the amount funded in the first round, said Steve Adams, chief commercial banking officer. He said the volume was lower most likely because it represented applications from smaller businesses that may not have applied as soon as they could during the first round of funding.

“It’s been very slow going. Most of that is the result of the volume that exists not just in Synovus’s backlog but in every institution’s backlog,” Adams said.

“There’s a limitation to how quickly every bank can move through their applications," Adams added. "We’ve made great improvements in our process and our technology, but we can only process X number of loans per hour, which is having a substantial impact on how quickly we can move through our backlog.”

Synovus has pulled in commercial bankers, administrative assistants and marketing staffers to help, Adams said. "They've become extremely passionate about the process.”

NexTier Bank in Kittanning, Pa., started Monday with about 200 applications in its queue, said Maria Amoruso, the $1.4 billion-asset bank's chief marketing officer. NexTier had 13 people at the ready to upload applications to E-Tran. System problems idled them most of Monday morning.

“As far as I know, we only had one applications that was able to get in and approved,” Amoruso said. “I was a little concerned this might happen. I think everyone was trying to access the system at the same time.”

NexTier was able to access the system late Monday afternoon. “It seems we now have access and will be continuing to process applications as quickly as we can,” Amoruso said.

NexTier’s team planned to keep plugging away.

“We stayed up working until 4 a.m." during the program’s first phase, Amoruso said. “We’re willing to do anything it takes to get loans approved."

TD, too, plans to work late until Paycheck Protection’s new funding is exhausted.

“The proverbial phrase 'all hands on deck’ sometimes gets overplayed,” Giamo said. “In this scenario, I don’t think it really does. … I do believe it’s going to be a continued all-hands-on press, working long hours until we do the best we can. We’re proud we’ve met a lot of client needs. We don’t want to leave one behind, either.”

The PPP offers businesses with 500 or fewer employees loans up to $10 million that can be forgiven if borrowers spend the proceeds on payroll and other basic operating expenses. Interest on funds that aren’t forgiven is capped at 1%.

Though the program’s second phase has only just begun, many bankers are hinting at the need for a phase three.

“I don’t think I’d be terribly surprised,” Giamo said. “I do think the demand is still there.”

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Paycheck Protection Program SBA Coronavirus Small business lending Commercial lending