Twelve days into small business loan program, business owners say money still isn't flowing
It's been 12 days since the U.S. Small Business Administration launched a program to shore up small businesses reeling from the novel coronavirus pandemic. But many owners in Michigan and across the country say they have yet to see money hit their bank accounts.
"They told people, 'You're going to be able to get your money quickly," said Daniel Smale, president of the Woodward Co., a Grosse Pointe Farms-based financial advisory firm. "People are saying, 'That's good and all, but we need it yesterday. We needed it last week.'"
Still, the SBA said that as of Monday it had approved more than 1 million loans totaling more than $247 billion — about 70% of the $349 billion allocated to the Paycheck Protection Program by the $2 trillion Coronavirus Aid, Relief and Economic Security (Cares) Act signed into law March 27. In Michigan, the agency had approved nearly 25,000 loans worth more than $7.3 billion.
The hasty rollout, combined with partisan disagreement over a proposed $250 billion expansion of the program, has fueled anxiety among small business owners that they will be unable to get urgently-needed assistance.
Some small community banks have been able to quickly scale up and process applications. Among larger banks, the results are mixed. Some, such as Bank of America, were up and running as soon as the program launched. Others, including Dallas-based Comerica Bank, have yet to get automated application systems online.
Many lenders are accepting applications only from existing clients, frustrating small business owners whose banks have been slow to process applications, and leading to concern that unbanked business owners will be unable to take advantage of the program.
Smale's firm has handled dozens of PPP applications for its clients. What they've seen is that community banks have been contracting with SBA development companies, which are experts in SBA loans. The larger banks have mostly opted to process applications themselves.
Some of those banks, including Comerica and Fifth Third, "stand out like a sore thumb," Smale said. "Others may have trouble or may be backed up with processing. But in times like this, people are so stressed out. And it might seem like a fine line, but at least some of the others ... have given people hope."
As late as Tuesday, some Comerica customers in the Detroit area reported being unable to submit an application. The bank has been attempting to open an automated online application portal, but so far is only able to process applications manually.
"We are in the final phase of testing our new technology, which we believe will allow us to handle all customer applications at scale," Comerica spokesman Matt Barnhart said in a statement.
Until then, the bank is manually processing applications, and asking customers who wish to apply online to visit its website to fill out a form with their contact information. As of late last week, Comerica said it had manually processed $200 million in loans. It had no updates to that figure on Tuesday.
Some of the delays, according to the banking industry, are due to banks covering the bases they are required to under federal regulations.
On April 9, U.S. Sens. Tim Kaine, D-VA, Chris Coons, D-DE, and Angus King, I-ME, sent a letter to the American Bankers Association calling on banks to open up applications to new customers. The senators noted restricting applications to existing customers could have the "unintended consequence" of excluding business owners that are under-served by banks, including women, minorities and those in rural communities.
In response, ABA CEO Rob Nichols replied Monday, saying implementation of the program "has been fraught with challenges for both the government and financial institutions." He recommended the federal government ease regulations that are intended to prevent money laundering and other illicit loan activity:
"The overwhelming demand for the program, along with mandatory Know-Your-Customer (KYC) and anti-money laundering (AML) requirements, have led many banks to initially limit the application process to existing customers for whom banks have previously conducted the bank’s Customer Due Diligence (CDD) process. While the CARES Act calls for speed, other existing banking laws require banks to take the time to verify important borrower information."
On Tuesday, the Treasury Department issued new guidance on how the program applies to sole proprietors. The new guidelines also clarified that businesses in the gaming industry can participate in the program.
The guidance did not go far enough for the national trade group that represents the U.S. casino industry, the American Gaming Association, however. In a statement, it said: "While these changes represent some progress, they fall woefully short of fully addressing antiquated, discriminatory policies that have, to date, restricted small gaming companies from accessing critical loan support made available through the Cares Act."
The SBA has taken steps to expand the pool of eligible lenders. All federally-insured banks, credit unions and farm credit associations can apply to participate. And, nontraditional lenders such as Fintech companies are also now eligible.
Ohio-based Huntington Bank is not accepting new applications right now, as it works to process the $6 billion in requests it has received. The bank has begun closing and funding loans, and will start accepting applications again "as soon as we can work through the enormous demand we have received and confirm that federal funding is available," spokeswoman Emily Smith said Tuesday.
Huntington customer Latricia Wilder, who owns downtown fitness studio Vibe Ride Detroit, was unable to apply before the bank stopped taking new applications. This week, she applied for a $25,000 loan through Chase Bank, but had not yet heard back about the status of her application.
Ohio-based Fifth Third Bank as of late last week said it was processing applications and had received 33,000. On Monday, spokeswoman Beth Oates told The Detroit News the bank did not have any numbers to share, but has "bankers assigned to work through all applications 24 hours a day."
Fifth Third customer Fred Detwiler, president of Oak Park-based trade exchange network Trade First, had been frustrated for weeks. But he said Tuesday that he'd gotten confirmation that his application had been processed.
Bank of America did not immediately respond to an inquiry. But, it reported receiving more than 300,000 applications totaling $45 billion in loans, in a response to a Baltimore judge's Monday ruling that the bank is allowed to restrict from whom it accepts applications, the Baltimore Sun reported. A class-action lawsuit had challenged the bank's policy of accepting applications only from existing customers.
Detroit-based TCF Bank has received more than 14,000 loan applications totaling about $4 billion, and started disbursing funds on Friday, according to executive vice chairman David Provost.
"It's all hands on deck," he said. "We know how valuable [these loans] are to our clients and the community. It’s going to be a great program — it just needs a little time.”