New small-business loan funds expected to run out even faster than first round

As the U.S. Small Business Administration gears up to start accepting new applications for a loan program aimed at shoring up small-business payrolls amid the coronavirus pandemic, the new tranche of funding is expected to dry up quickly as hundreds of thousands of applications are already queued up by lenders.

President Donald Trump on Friday signed into law a $484 billion coronavirus relief package, the fourth since early March. It includes $320 billion in additional Paycheck Protection Program funding.

The first $349 billion tranche was gone within two weeks of the program's April 3 launch, with the SBA reporting the program assisted some 1.6 million small businesses in a record amount of time. In Michigan, the SBA approved more than 43,000 applications totaling nearly $10.4 billion.

The additional federal loan dollars came as Mayor Mike Duggan at a news conference Friday acknowledged the difficulty some businesses in the city had faced in applying for one of the loans: "There are a number of Detroit companies who were tied up in the lending process through their bank, and we had one bank that didn't even get their lending process up and running until the money had run out. So we've been very concerned about making sure that in this second round, Detroit companies do not get closed out."

Duggan and Goldman Sachs CEO David Solomon announced a new $15 million forgivable loan program for small businesses that have been shut out of the Paycheck Protection Program. Business owners can apply online now.

Now that some wrinkles in the Paycheck Protection Program have been ironed out and lenders have scaled up their ability to process applications, the second round is expected to be allocated within days of its launch at 10:30 a.m. Monday.

"We do know there are some lending institutions that have a backlog of PPP applications," Rob Scott, SBA regional administrator for the Great Lakes region, said on a call Friday. "You're probably look at a week's time frame on the funds that are going to be re-appropriated."

Toward the end of the first round, Scott said, the SBA was allocating between $3 billion and $4 billion an hour.

"It's going to at a fast rate. It was a very successful program the first round and we expect it to be successful the second round."

His advice to small business owners who were unable to get funding the first time around: Call your lender now to check on the status of your application. 

The Paycheck Protection Program makes forgivable, SBA-guaranteed loans of up to $10 million available to small businesses that keep employees on the payroll for eight weeks.

The program has not been without controversy or criticism. 

The SBA launched the program, without sending out complete guidance to lenders, just days after it was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law March 27. Initially, some technical glitches were reported and some lenders were unable to get their application processes up and running right away.

Further, outcry followed when it was revealed that several publicly traded companies had received the loans, which the Treasury Department has said they should repay and will not be permitted this time. Part of the reason those companies were able to get the loans was because, in trying to speed up getting money to small businesses, the SBA relaxed some of its normal requirements, Scott said.

Additionally, numerous lawsuits have been filed alleging that banks prioritized larger loan requests, thus bringing in larger processing fees.

The SBA has reported that the average loan amount from the first round was $206,000, indicating that "smaller businesses in our local communities and neighborhoods certainly benefited," said Scott, who expects the averages will be similar in the second round.

The new allocation sets aside $60 billion for small- and medium-sized lenders. Half of the $60 billion is earmarked for lenders with less than $10 billion in assets, and the other half is set aside for lenders with assets between $10 billion and $50 billion.

As for the claim that banks may be prioritizing certain customers over others, Scott said there are no federal regulations that would prohibit this, but, "From the SBA's standpoint, when a lender enters [an application] into our system, it's first-come, first-serve."

The SBA does not have a line of applications waiting, because it closed out its queue when the initial funding ran out, but many lenders have queues.

Chase Bank, one of the largest financial institutions in Michigan, told The Detroit News Friday that it has more than 300,000 applications queued up. "Of that, we have tens of thousands ready to submit right away (they have been processed and verified on our end). We have been and will continue to work the rest of the pipeline," spokeswoman Anne Pace said in an email.

Comerica Bank, which has faced criticism from southeast Michigan customers for not getting its online application portal up and running until several days after the first round of funding had expired, said Thursday that it is "continuing to accept loan applications." The Dallas-based bank, which was headquartered in Detroit until 2007 and is one of Michigan's largest, is asking business customers to go comerica.com to apply for a PPP loan if they haven't already. 

Ohio-based Fifth Third Bank, which previously processed 9,600 applications worth $3.4 billion, is ready to start submitting applications again as soon as the SBA reopens the process, spokeswoman Beth Oates said.

But, in an update on its website about the new PPP dollars, the bank said that due to the "overwhelming number of applications already submitted to Fifth Third Bank, it is highly unlikely that all applicants will receive funding. While we will continue to process applications already received, we will not be accepting new applications at this time."

The new coronavirus relief package also includes $25 billion to expand coronavirus testing, $60 billion in loans and grants for the Economic Injury Disaster Loan program, and $75 billion for hospitals.

Discussion has already started to percolate about a possible third tranche of funding, but no action on that is expected until at least early May, the Associated Press reported Friday.

The banking industry has said that as much as $1 trillion will be needed. Consumer Bankers Association President Richard Hunt predicted new PPP funding could be gone within 48 hours, Politico reported.

“It is highly likely banks have as many, if not more, applications for this next allocation of funds as the first," CBA spokesman Nick Simpson told The News.

jgrzelewski@detroitnews.com

Twitter: @JGrzelewski