'It's just confusing': Michigan small business owners struggle with SBA loan program
Latricia Wilder's 8-month-old downtown fitness studio, Vibe Ride Detroit, had just gained momentum when she was forced to shut it down early last month because of the coronavirus pandemic.
She had to issue refunds to customers and lay off her entire staff of about 20. Fortunately, her landlord, Bedrock Detroit, is waiving rent for three months, but Wilder has been dipping into her personal checking account to cover insurance costs and utility bills.
As she tries to stay afloat and considers more drastic steps, such as raiding her 401(k), she's holding out hope for some relief from assistance programs available to small business owners, including the U.S. Small Business Administration's "Paycheck Protection Program" launched last Friday. But so far, Wilder hasn't even been able to apply because her lender, Huntington Bank, told customers it's hitting pause because of "unprecedented volume" it has received.
"It's just confusing," Wilder said. "You look on TV and they say there is so much help for small businesses. But in practicality ... I can't even find a bank I'm affiliated with to fill out an application."
Wilder is not alone. Small business owners across the country are complaining of challenges applying to the program even as the SBA reports that applications for as much as a third of the available loan dollars have been approved. That's leaving small business owners who haven't been able to find a lender worried they'll be left high and dry.
That's why the Trump administration and Senate Republicans are calling for an additional $250 billion, but the future of that proposal is unclear because Senate Democrats on Thursday blocked a GOP effort to expand the program. That came the same day as the Federal Reserve announced a complementary program that would extend $600 billion in loans to small- and mid-sized businesses.
The SBA program is part of the $2 trillion Coronavirus Aid, Relief and Economic Security (Cares) Act that was signed into law March 27. It makes $349 billion in low-interest loans available, via SBA lenders, to businesses with 500 or fewer employees. Businesses can borrow up to $10 million. The SBA will forgive the loans if the money is used to keep employees on payroll for eight weeks, or if it's used for rent, mortgage interest or utilities.
The SBA does not have local data on loan applications, but it said that nearly 400,000 loans, totaling more than $100 billion, had been approved. Brooke DeCubellis, a spokeswoman for the SBA's Michigan office, said although not all SBA lenders are participating, new lenders are applying for SBA lender status.
And the SBA is expanding its lender eligibility criteria so that all federally insured banks, credit unions and farm credit associations can participate. She encouraged business owners to contact the SBA Michigan District Office at (313) 226-6075 or email@example.com to get an up-to-date lender list.
The program launched last Friday, just hours after the SBA released initial guidance to banks. The rollout was by many accounts chaotic, with several major national banks unprepared to process applications.
Bank of America was the first major bank to start accepting applications. Immediately, the bank was hit by a deluge. By the close of business Tuesday, 250,000 applications worth $40 billion in loans had rolled in.
"From the moment it launched, we were receiving about 10,000 applications per hour," said Carla Molina, Bank of America senior vice president of corporate communications. Yet to the frustration of some small business owners, many lenders, including Bank of America, are only accepting applications from existing customers.
U.S. Rep. Rashida Tlaib, a Detroit Democrat who sits on the House Financial Services and Oversight and Reform committees, told The Detroit News that at least two small business owners in her district have been denied loans by Bank of America because they did not have an existing relationship with the institution.
“These are folks on the ground who needed help two weeks ago,” she said, noting she has heard similar complaints from other lawmakers. “Now they’re getting set back because banks are adding requirements that Congress didn’t intend. We have to make sure the implementation is accessible and fair to everyone.”
Tlaib said lawmakers are already talking about placing language into the next round of COVID-19 aid legislation to address the practice of banks placing additional requirements on small businesses that are not in the legislation creating the program.
Banks are "consistently upset (with) regulations, but it’s because they’re acting badly," she said. "To decide you have to have a prior relationship, especially during a pandemic, it’s not right.”
U.S. Rep. Fred Upton, R-St. Joseph, acknowledged there have been "real glitches" with the program, fixes to which he has discussed with Vice President Mike Pence and Treasury Secretary Steven Mnuchin. He also noted the GOP proposal to inject another $250 billion into the program, saying: "it's clear we'll need to provide significantly more resources to help keep our small businesses open."
For small business owners whose banks are not yet up and running with the program, being unable to apply at other banks is particularly frustrating. Fred Detwiler is president of Trade First, an Oak Park-based small business that operates a network in which businesses sell their products using Trade First's private currency.
Detwiler has attempted to apply for SBA relief through his primary bank, Fifth Third Bank, but said that as of Thursday, he had been unable to do so: "If it was guaranteed that everyone would get the money, there wouldn't be that big of an issue. But there is only so much available, and it's first-come, first-serve. So it's like musical chairs."
Fifth Third spokeswoman Beth Oates said the bank has now started processing applications and to date has received 33,000 applications.
Detwiler, who has had to lay off several of his approximately 35 employees, has heard similar stories from the local small businesses such as hotels and car washes that are among his clients.
"Our major banks are letting the local businesses down," he said. "Detroit's got enough issues. This is not one they need, nor do the business owners."
Anecdotally, some small business owners say they've had better luck applying at community banks, such as Detroit-based TCF Bank. It started accepting PPP applications Sunday, and as of Thursday had received 10,500 applications worth $2.5 billion, executive vice chairman David Provost said.
TCF, which Provost described as a hybrid of a community bank and a regional bank, operates 321 branches in seven states. Normally, its SBA office might have 10 employees.
This week, TCF scaled up to train 500 people to process SBA loan applications. This is happening, Provost noted, not only as banks continue to conduct their normal business, but also while many bank employees are adapting to working remotely.
The program is "great," he said. But "the issue is that it was rolled out with very, very little notice, as happens in these kinds of emergencies, so the pipeline is tremendous." And the SBA continued to tweak the program after launching it.
"It's like playing a game of basketball where the rules are changing all the time," Provost said.
TCF currently is accepting applications from existing customers, as well as nonprofits. The bank expected to disburse funds for the first time Thursday, with larger disbursements expected next week.
"It's a valiant effort, and we understand the implications that this has for small businesses and nonprofits," Provost said, "and we're really working hard" to meet their needs.
Jeff Katofsky, the majority owner of the St. Clair Inn in St. Clair and the Delta Hotel at the Detroit Metropolitan Airport, purposely went to US Metro Bank in California because it is a smaller community bank. And he was able to apply for PPP loans for several of his businesses.
He described a confusing application process, not least of all because he had to update his application several times because of changes the SBA made.
“If your bank isn’t there to help you, and you don’t have the infrastructure, I don’t know how people can get it done," he said. "It’s not overwhelmingly hard, but it’s a red tape process. If you don’t normally do it, it’s really confusing."
According to an email sent to clients, Comerica Bank at first opted to hold off on accepting PPP applications so that it could develop its own application platform. But the major lender this week started processing applications manually, spokesman Matt Barnhart said, while it "(continues) the swift development of our automated solution." To date, Comerica has processed $200 million in PPP loans.
Huntington Bank has received applications totaling more than $4 billion in requests and has gotten SBA approval for $2.6 billion in loans, according to spokeswoman Emily Smith. The Ohio-based bank's application process is paused for now, but the bank plans to reopen it "as soon as we can work through the enormous demand we have received and confirm that federal funding is available."
Small business owners hope the wrinkles in the process will be ironed out soon, for their sake as well as the health of a national economy under the enormous stress.
"The backbone of this country is small businesses," Katofsky said. "We all have got to make it, or else we got problems."
Staff Writer Keith Laing contributed.