Bumpy First Days As Banks Grapple With SMB PPP Demand


Call it a bumpy beginning — and that’s a charitable statement.

Friday, banks and other lenders officially opened the gates for applications to the Paycheck Protection Program (PPP) to relieve some of the burden brought on by the coronavirus pandemic.

But as might be expected with any massive undertaking, getting $349 billion in loans to the most vulnerable small- to medium-sized businesses (SMBs) across the U.S. got messy quickly.

The PPP is designed to offer loans backed by the federal government to SMBs with up to 500 employees. Those loans are forgivable if used primarily for payroll over the course of eight weeks.

To begin with, major banks initially were unable to start accepting applications on Friday, the first day of the program.

In one case, Wells Fargo had said on its site that “financial institutions like ours continue to receive program implementation guidance from the SBA [Small Business Administration] and the U.S. Treasury. Unfortunately, as a result, Wells Fargo will not be able to start accepting applications on Friday, April 3rd. When we are able to take applications, you’ll find a link to that application on this page so check back often.”

As PYMNTS checked the site over the weekend, the banking giant said SMBs and independent contractors could apply through the site, providing they had a Wells Fargo Business Checking account as of Feb. 15 of this year and were enrolled in Wells Fargo Business Online Banking.

“Complete this form, and we’ll email you with an update within a few days, and we’ll contact you when you can continue with the application process,” the site said.

Separately, JPMorgan started accepting applications for PPP after reports coming into the end of the week that (as noted in an email from the company) it would not be ready by Friday. And according to that bank’s site, “clients should expect that many businesses will be applying for these loans and the application site may be overloaded.”

JPMorgan went on to say on its site “applicants must submit SBA Form 2483 (Paycheck Protection Program Application Form). Note: While the SBA guidance directs applicants to use this form, it is not clear how lenders will be accepting this form.”

JPMorgan went live in the early afternoon on Friday — when the program was slated to launch at midnight on Friday.

To get a sense of how manual at least some of the processes are, CNN reported Saturday that JPMorgan has had to call each applicant. An unnamed source told CNN that there has been no real streamlined way to get information from applicants to the SBA.

“The biggest struggle so far has been in locking down the SBA on what information we need to send them in order to get a loan number,” said the source, as CNN reported. “And that loan number is the most important thing because that’s what allows us to then fund the customer.”

Prioritization of Loans

Bank of America said late Friday that it had received more than 85,000 applications for more than $22 billion in loans, CNBC reported.

But the bank has been prioritizing existing borrowing relationships, something that caught many SMBs with only a business checking account relationship by surprise.

CEO Brian Moynihan was quoted by CNBC as stating that “We have to focus on the borrowing clients to make sure we can take care of them,” before moving onto existing SMB relationships and then extending loans to new applicants.

SBA Committee Chairman Sen. Marco Rubio, Republican of Florida, tweeted that “BankofAmerica got bailed out with $45 billion of your tax money. But now just heard from #smallbusiness with a BOA account & a 400k line of credit they paid off. BOA denied #PPP loan because they don’t have a credit account. A ridiculous requirement that isn’t anywhere in law.”

That language and the prioritization of certain clients hints at bottlenecks and delays, a lack of clarity right into the teeth of what is swiftly becoming a crisis. And that is not, in the eyes of many, the intended spirit of the legislation as banks impose their own conditions outside of what is provisioned in the bill.

Adding to lack of clarity might be what the banks might do once the loans are on their balance sheets. Although the loans are indeed guaranteed by the government — and the Treasury Department has said it will purchase the loans (with the SBA) — holding the loans ties up bank capital and may (or may not) introduce new risk. (New guidelines last week said lenders would be held harmless if borrowers commit fraud or do not comply with the program’s tenets.) Spelling these details out would go a long way toward easing the path to getting loans to SMBs.

Looking Ahead

It may be the case that the $349 billion is just part of what’s needed. And according to reports over the weekend, President Donald Trump and Treasury Secretary Steve Mnuchin have said that more money could be in the offing — and they will ask Congress for more funding if needed.

The fact remains though that days are in short supply for SMBs, which, as we estimated on March 24 through a survey of more than 200 SMB owners in the COVID-19 Brief, that there was only enough cash on hand to get through the next 20 days before having to tap into additional means of securing capital.

And there is another avenue of concern looming: As we noted late last year in the “SMB Receivables Gap Playbook,” PYMNTS’ findings reveal that U.S. companies have an estimated $3.1 trillion suspended in accounts receivable on any given day. Unlocking that cash flow would prove especially onerous given the current economic crisis because so many firms up and down supply chains have shut their doors and simply vanished. That spells trouble for the 56.2 percent of SMBs that commonly experience cash shortfalls as a result of the cash flow “gap.”

Glitches are perhaps to be expected, if not tolerated, when a program the size of PPP goes live, but smoothing out the kinks with the pressures of disappearing top lines, dwindling cash reserves and the cash flow gap is more urgent than ever.

That is, if we want to keep SMBs and Main Street alive.