The frenzy began before most banks even opened. By 9 a.m. on Friday, banks had already processed 700 loans totaling $2.5 million for small businesses as the spigot opened on a federal emergency relief program. But that was just the beginning. By early afternoon that number had ballooned to $1.8 billion. And by evening it was $3.2 billion in loans that will go to more than 10,000 small businesses desperate to save themselves.<\/p>\n
It was all part of a scramble by small businesses around the country to stay afloat by grabbing a piece of a Treasury Department program to pump $349 billion into the sputtering U.S. economy due to the coronavirus pandemic. Small businesses, which employ nearly half of America\u2019s private-sector workers, are hemorrhaging, and the loans are meant to help them retain employees or rehire those they let go.<\/p>\n
But business owners found that applying for the money was harder than they had anticipated. Lenders had received guidance from the Treasury Department only the night before, just hours before they were to start making loans. On top of that, banks imposed their own rules on which businesses could and couldn\u2019t borrow. And many lenders, including JPMorgan Chase, the nation\u2019s largest, didn\u2019t have their websites ready for borrowers until later Friday.<\/p>\n
For small-business owners, many of whom have run out of cash to pay salaries and rent, time was everything. Fearful that the money will run out \u2014 Treasury Secretary Steven Mnuchin said the loans would be on a first-come, first-served basis \u2014 they flooded banks with calls and emails as they tried to get to the front of the line.<\/p>\n
The small-business bailout \u2014 otherwise known as the \u201cPaycheck Protection Program\u201d (PPP) \u2014 was arguably the most ambitious provision of the $2 trillion stimulus bill that Congress passed.<\/p>\n
Under the policy, any business (or nonprofit, veterans organization, or tribal concern) with 500 or fewer employees is eligible for a government-backed loan equivalent to eight weeks of its prior average payroll, plus an additional 25 percent of that sum. In reality, these loans are really more like grants: Firms don\u2019t need to make any payments on their loans for six months \u2014 and if they maintain their workforces, then the government will forgive almost all of the loan. The idea is to keep the small-business sector frozen in place, so that it can rapidly defrost once the coronavirus pandemic has passed.<\/p>\n
But you can\u2019t freeze something for later if it\u2019s already spoiled. And many small firms directly impacted by social-distancing measures were already rotting by the time Congress finally passed legislation. For these reasons, the Trump administration was eager to get the PPP up and running as quickly as possible. To that end, the administration made it possible for small-business owners to secure government-backed loans at any federally insured lender that wishes to participate in the program, regardless of whether such banks or credit unions are affiliated with the Small Business Administration, and officially launched the program last Friday.<\/p>\n
Some issues that are coming up among the bailout include:<\/p>\n
America is facing yet another grim unemployment report. On Friday, the Labor Department said employers shed 701,000 jobs last month \u2014 the biggest monthly drop in more than a decade, ending a landmark 113 months of job creation. Nearly 10 million people applied for unemployment benefits over the previous two weeks.<\/p>\n
Companies with fewer than 500 workers have slashed millions of jobs in recent weeks as restaurants, bars, and retailers across the country were forced to shut their doors.<\/p>\n
The PPP program offers companies loans of up to $10 million. The Small Business Administration is backing the loans, but customers must apply through banks or other lenders.<\/p>\n
Bank of America was the first big bank to begin taking applications, and it had around 10,000 by early Friday, Brian Moynihan, the bank\u2019s chief executive, said on CNBC. By evening, its loan requests totaled $22 billion, a spokesman said.<\/p>\n
But many Bank of America customers were dismayed to find that the lender would not work with them because they had only accounts, and not loans, with the bank. The bank said it was accepting applications only from customers who had both \u201ca pre-existing business lending and business deposit relationship\u201d as of Feb. 15.<\/p>\n
Several Arizona businesses reached out to The Upper Middle to report they too faced the major pushbacks from their banks.<\/p>\n
Arizona businessman Eli Faustinos shared his experience, \u201cI have a small business with about 20 employees and bank with Bank of America for the last 5 years.\u00a0 I received an email from the bank explaining that they won\u2019t process my application unless I have both a banking relationship and a lending relationship with them.\u00a0I have been able to run my business without debt and now that I truly need it, my bank won\u2019t support me, despite the fact that this is a national emergency and they are being given the funds to support their customers.\u00a0 What a huge disappointment and betrayal.\u00a0 There has to be a legal way to stop them from doing this.\u201d<\/p>\n
An Arizona businesswoman faced the same action with Bank of America. \u201cI too have been a long time client of Bank of America and as other\u00a0people have indicated I do not have any\u00a0debt or loans so I do not\u00a0qualify after filling out the paperwork. I have a credit card with another bank that at the time provided me with\u00a0credit line that I needed early when I started my business but I have\u00a0never been able to obtain that with my own bank after continuously\u00a0banking with them for over 30 years.\u00a0I now have to\u00a0figure out how I am going to pay utilities, insurance premiums, and\u00a0equipment leases. Even though I have only three employees that have been with me over 20\u00a0 years, I would hate to lose them and I am doing all that I can to keep\u00a0this business going remotely with my staff.\u201d<\/p>\n
Dean Athanasia, the head of Bank of America\u2019s consumer and small business group, sent a memo to employees on Friday pledging to \u201cenhance\u201d the program soon \u201cto accommodate more and more of our small-business clients.\u201d<\/p>\n
JPMorgan Chase said it would take applications only from people who had a business checking account with the bank as of Feb. 15. A notice on Wells Fargo\u2019s website said it, too, required an existing business checking account. Citi has not yet announced its rules; a spokesman said it was reviewing the program\u2019s rules and planned to start accepting applications \u201cas soon as possible.\u201d<\/p>\n
Hundreds of business owners complained on Twitter that they were ineligible for their bank\u2019s program or that it had not yet started accepting applications. The National Federation of Independent Business said many feared they would be shut out of the aid effort.<\/p>\n
Adding to the pressure: Many expect the program\u2019s $349 billion lending pool to run out unless Congress allocates more money.<\/p>\n
The Treasury Department had hoped to bring nonbank lenders into the program, but as of Friday, the government had not even released an application that would let financial technology companies apply to participate, industry executives said.<\/p>\n
Lenders struggled with operational issues throughout Friday.<\/p>\n
Chase\u2019s website for the program returned error messages at times in the morning, leading many aspiring applicants to assume it was overwhelmed with traffic.<\/p>\n
A Chase spokeswoman said that the site had not crashed and that it was taken offline for updates. The bank started accepting loan requests shortly after 1 p.m.<\/p>\n
Some of the features that were supposed to make it easier for banks to quickly ramp up lending through the program may actually make it harder for people who need the money to get it.<\/p>\n
Participating banks are protected from liability for some things that regulators would normally punish them for, like not performing a thorough-enough background check on a borrower who later turns out to be a criminal. But they aren\u2019t completely exempt from having to look into customers\u2019 profiles, and one way they can avoid having to do too much extra paperwork is to lend only to existing customers.<\/p>\n
That barrier is causing problems for small businesses that have not borrowed money recently. It is an even bigger problem for minority-owned businesses, which struggle even in good times to get banks to lend to them.<\/p>\n
Another fear is that the program will be overrun by fundamentally healthy businesses eager to have the government cover up to two months of their payroll costs. Borrowers don\u2019t have to document a hardship like a sharp sales drop; they simply have to affirm that \u201ccurrent economic uncertainty\u201d makes the aid necessary to support their \u201congoing operations.\u201d<\/p>\n
Despite the paycheck program\u2019s chaotic start, Mr. Steinour of Huntington Bank said he hoped it would play a vital role in salvaging tens of thousands of businesses that would otherwise collapse.<\/p>\n
\u201cThis is an extraordinary program, and to have it all put together in a week was a phenomenal, around-the-clock effort,\u201d he said.<\/p>\n