You could say that Friday’s (April 3) rollout of the $350 billion small business relief Paycheck Protection Program (PPP), part of the $2 trillion CARES Act stimulus package, went less than smoothly when it started.
But that description doesn’t quite do justice to what a bumpy ride it was — or how frustrated small- to medium-sized business (SMB) owners, bankers and government officials were by the end of the day.
Although Treasury Secretary and architect of the massive stimulus package Steven Mnuchin worked hard to reassure SMB owners that despite difficulties in applying to the program on the first day, saying per NBC, “They shouldn’t worry about it. There’s plenty of time, there’s plenty of money left,” people went into the weekend clearly feeling less than reassured.
“It’s been nothing short of a disaster,” Grant Geiger, CEO of EIR Healthcare, which submitted a loan application Friday, told NBC. “It’s been confusing at every turn.”
Melissa Perri, CEO of New York’s Produx Lab was somewhat more pointed in her criticism of her bank.
“Are you kidding me @BankofAmerica with this requirement of having a credit card to apply for the PPP?” she tweeted. “What type of scam is this. I have been a loyal customer for years with my business accounts.”
It was a day filled with a lot of complaints. Despite being told that all an SMB needed to have to apply was a business bank account open since January of this year and tallies for their payrolls payouts (as the loans are set at 2.5 times monthly payroll costs), entrepreneurs flooded social media all day complaining of extra requirements being added on by their banks — like pre-existing accounts or a credit card account; or delays in the program rollout for a few days while banks claimed they were shuffling to clarify the rules; or limits to how much they might get from their bank that was less than the $10 million cap.
Layered over that were technical failures — as overburdened servers simply crashed under the tidal wave applicants.
It was, Paul Purcell of Jupiter Management said, a day of anger and disbelief for all who watched it unfold live or experienced it first-hand and an unfortunate example of what happens when the irresistible force that is a federal government attempting to instantly inject $350 billion in funds into the SMB economy runs headlong into the immovable object that is the heavily regulated, highly cautious U.S. banking system which used to processing and distributing those funds.
“The biggest thing here that we’re dealing with is the speed in which money is moving,” Purcell said. “I think that when you’re trying to move something very fast in the U.S. banking system, that becomes difficult. I think we got better over the weekend, and I think we’re getting better. The week began and hopefully that will mean from here it’s going to get better.”
But as for why it went wrong last week, in short, Purcell noted, the U.S. banking system is built for stability and security — not speed — particularly in the aftermath of that last financial crisis when the entire financial system learned simultaneously the importance of being careful when lending money.
The current circumstances, however, are extremely rare, Purcell noted. The funds going out under the PPP aren’t loans — these are funds ultimately going to the Federal Reserve’s balance sheet; the banks are simply the existing infrastructure to process these loans and disburse the funds. It wasn’t entirely clear on day one that the Small Business Administration (SBA) was ready to roll out, and there were open questions that banks were right to be asking about before they started taking applications.
They actually needed to know that there was no scenario in which these funds could end up on their balance sheets due to mistakes or errors in the distribution process. That, Purcell said, is especially true of banks that have perhaps spent enough time in Congressional hearings over the last few years for lack of oversight of their internal processes and now have a “less than prudential” relationship with their regulators.
But, he noted, he is disinclined to let the banks, particularly the largest players, off the hook for some of the roadblocks they threw up on Friday in response to the remaining issues and unknowns that were still being ironed out as applications opened.
“For the most part, out of the first draft of the legislation, nothing in this program changed that much,” Purcell noted. “For the banks that said, ‘Hey, we don’t know the rules, so we can’t have our stuff ready to deal with our customers,’ I don’t give them a free pass on that. They had a long time to get their people ready and geared up without a final rule book.”
For the SMBs that need this money, the floodgates didn’t open on Friday. And 1099 workers who are excluded from an SMB’s payroll can’t apply to the program until a week after the business they worked for did, already operating at a delay that Purcell said he worries could leave them fighting for scraps at the end. The prospect of more delays going up is daunting and concerning.
There are lessons to be learned for the next time — with the caveat that the great hope is there will never be a next time that looks exactly like this time.
Was the SBA the best point through which to push $350 billion in funds nearly overnight to businesses of all sizes and descriptions nationwide? The various failures of the tech stack throughout the day indicates that work is going to have to be done there, particularly in terms of handling large upswings of sudden demand. But, Purcell noted, the system has made those kinds of adjustments before as seen in the case of 9/11 and the Great Recession more than a decade ago.
For now, Purcell noted, despite the rocky start, it seems things are smoothing out in subsequent days and the various parties involved are coordinating better. He said he remains hopeful that the SMBs which need their PPP funds are going to get them. Mom and pop shops, nail salons, hairdressers and hospitality players that have all been largely decimated by recent events will hopefully have these funds in their hands in time to keep them alive while the economy recovers from its coronavirus infection.
“But I have faith in America, and I believe that the money we’ll get preponderantly will get to the places it needs to be because the business of America is business. The United States of America is the greatest startup in the history of startups. It’s our DNA,” Purcell noted
It might not have been enough to guarantee a perfect start to the race, but Purcell said he believes it will be what ultimately gets us over the finish line together.