Small business loan program gets off to a rough start

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The federal government’s $ 350 billion small business loan program got off to a rocky start on Friday, with some of the nation’s largest lenders saying they were unable to process loan applications yet, discouraging lenders. business owners who find it difficult to stay afloat.

“I roamed the Los Angeles area for three hours and called several banks,” said Paulo Amaral, founder of Ally Right, a Los Angeles-based startup that helps make websites accessible to people with disabilities. . “No luck at all.”

By 4:30 p.m., at least 9,779 loans worth about $ 3.2 billion had been approved, according to Small Business Administration chief Jovita Carranza, who was counting on Twitter. Michael Strain, an economist at the American Enterprise Institute, calculated that half of that amount would keep about 400,000 employees over the next eight weeks.

President Trump enacted a landmark $ 2 trillion bill at the end of March to provide relief to workers and businesses affected by the novel coronavirus pandemic. WSJ breaks down what’s in the package. Photo: G. Ronald Lopez / ZUMA Wire

But with millions of people losing their jobs every week, it’s “a drop in the bucket,” said Brock Blake, managing director of Lendio Inc., a tech company that connects lenders and small business borrowers. .

Friday was day one of the new paycheck protection program, part of a $ 2 trillion stimulus package designed to deal with the economic fallout from the novel coronavirus pandemic.

Businesses with 500 or fewer employees are eligible for the loans, which have a 1% interest rate and are designed to keep employees on the payroll for eight weeks, limiting the growing ranks of workers requesting unemployment checks. . If a borrower does not fire workers, the government plans to cancel the loan, including the interest. Borrowers can also use the money for rent and utilities.

Many of the country’s largest banks, including JPMorgan Chase JPM -0.08%

& Co., Citigroup Inc.

and Wells Fargo & Co., said Friday morning that they were not yet ready to accept loan applications. On Friday afternoon, Chase said borrowers with checking accounts could start applying for the loans online; but the bank warned of possible “processing delays and system failures” due to high volume and told customers some requests would not be approved by the SBA given limited funds.

One of the reasons many banks weren’t ready to process applications was a delay in obtaining final program rules from the Treasury Department and the SBA, as well as uncertainty about the types of documents. that will be accepted to qualify potential borrowers. The government did not release final drafts of documents due for borrowers and lenders until Thursday evening.

Bank of America Corp.

began accepting applications Friday morning and had received more than 85,000 for loans totaling $ 22.2 billion by 5 p.m., a spokeswoman said. But the bank said it only considers customers with both outstanding loans and deposit accounts in order to speed up the approval process.

“First of all, we need to focus on the borrowing clients to make sure we can take care of them,” Brian Moynihan, CEO of Bank of America, told CNBC. “And second, the people with the core relationship who aren’t borrowing, we’ll deal with them as well.” “

Senator Marco Rubio, chairman of the Senate Small Business Committee, criticized the bank and said it should receive all comers. “This money is 100% guaranteed by the federal government,” the Florida Republican said in a tweet.

According to Ms. Carranza’s figures, the average loan amount approved was around $ 325,000. At this rate, the roughly $ 350 billion allocated by Congress would be depleted after the approval of one million applications. The government has said it approves loans on a first come, first served basis.

“If funds run out, there will be immense political pressure on Congress to secure funding to ensure that people are not left out because they are at the end of the line,” said Harris Simmons, CEO of Zions Bancorp.,

IF WE 0.05%

a major lender from Utah.

Treasury Secretary Steven Mnuchin has said he will ask Congress for more money if the paycheck protection program needs more funding.

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About a quarter of small businesses have already closed, according to a survey of 500 companies released Friday by the U.S. Chamber of Commerce and MetLife..

Another 40% said it was likely they will have to close at least temporarily in the next two weeks.

Questions about the program remained even when it started.

One of the questions is whether the 1% interest rate is simple or compound interest and what banks should do in case borrowers miss their payments, said Scott Pearson, financial services expert at the firm. of lawyers Manatt, Phelps & Phillips.

It was also missing a standard loan agreement that spelled out the terms and conditions of the loan.

Chris Hurn, managing director of Fountainhead Commercial Capital, a non-bank lender specializing in SBA loans, said that as of Friday he was still awaiting SBA advice on several issues, including how to submit claims. forms that applicants and lenders are required to complete. to fill. Mr Hurn said he couldn’t start processing requests without this guidance.

The SBA did not respond to a request for comment on the complaints.

Other small business owners say they are frustrated with policies, like the one outlined by Bank of America, that put some customers ahead of others. Prioritizing those with existing lending relationships is penalizing small businesses that have taken a conservative approach to debt, but still suffer financially from the pandemic.

Jen Storey, co-owner of Redhill Painting in San Francisco, has a business checking account with Bank of America and a business credit card with JPMorgan Chase. She said the eight-person business she and her husband had run since 2004 did not meet the standards for handling new SBA loans set by either bank.

Ally Right’s Mr Amaral said he got up before sunrise to start applying for a loan early with a local SBA lender listed on the agency’s website. The lender closest to his home said he was no longer doing SBA loans, the second knew nothing about the new program, and the third was closed due to the Covid-19 virus. He also tried Wells Fargo, where he has business and personal bank accounts, but said bank employees were unaware of the program.

A Wells Fargo spokeswoman said the bank will only accept loan applications online and has signs at its branches informing customers of the policy.

A restaurant closed at Washington Union Station in Washington, DC on Thursday.


Photo:

Agence France Presse / Getty Image

Some banks were working hard to update their systems to cope with what they expected to be an avalanche of loan applications. Boston-based Eastern Bank won’t start processing applications until next week as it needs to update its technology, according to Quincy Miller, president and vice president of the bank.

Miller said directives from federal agencies came too late to make any necessary changes in time to begin processing loans on Friday. Once the bank is ready, it will prioritize applications from clients who have an existing relationship with Eastern Bank.

Live Oak Bancshares,

Inc., the largest lender in an SBA flagship program, said it was working on a pipeline of more than 1,000 loan applications from its approximately 4,000 existing clients. Next, it plans to open the program to businesses near its headquarters in North Carolina, and then to new clients in the major industries it serves, including veterinary offices and chicken farms.

The bank submitted its first paycheck protection loan application to the administration at 4 a.m. Friday, said Huntley Garriot, chairman of the Wilmington, North Carolina-based bank. It took more than one try.

On Friday afternoon, the bank received its first loan approvals from the SBA and hoped to get the money back to customers by the end of the day or Monday.

Mr Simmons, the CEO of Zions, said his company would work all weekend to catch up with applicants who want to file loans. He said the bank is training 3,000 of its 10,000 employees to manage payday loans. “We want people who can answer questions” from borrowers, he said.

Becky Feinberg-Galvez, managing director of Shop4Ties, a Chicago-based bespoke clothing company, had hoped to apply for a loan through Citibank on Friday, but received an email saying the bank was not yet ready to accept requests. .

“I don’t blame [Citibank] obviously. I just think it’s frustrating that there is no finality and no one can give you an answer, ”said Ms Feinberg-Galvez.

Write to Bob Davis at [email protected], Ruth Simon at [email protected] and Peter Rudegeair at [email protected]

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