SBA loan program reopens with glitches, new scrutiny

  • President Donald Trump, flanked by Sen. Roy Blunt, R-Mo., left, and Jovita Carranza, administrator of the Small Business Administration, signs a coronavirus aid package April 24. Thousands of small businesses started lining up Monday for an additional $310 billion in government loans, but industry experts expect the funds to run out in a few days.

    President Donald Trump, flanked by Sen. Roy Blunt, R-Mo., left, and Jovita Carranza, administrator of the Small Business Administration, signs a coronavirus aid package April 24. Thousands of small businesses started lining up Monday for an additional $310 billion in government loans, but industry experts expect the funds to run out in a few days. AP Photo/Evan Vucci

 
 
Updated 4/27/2020 2:20 PM

The government's small-business loan program received $310 billion in fresh funding last week but came under immediate pressure Monday as many bankers complained about new technology glitches and fresh questions were raised about the mostly anonymous list of beneficiaries.

As bankers expressed fury that computer systems appeared to be faltering, the Los Angeles Lakers organization confirmed that it had received one of the taxpayer-backed loans under the program in recent weeks. The NBA franchise said it was returning the money, something several other well-off firms have done after their participation was revealed.

                                                                                                                                                                                                                       
 

The Trump administration has tried to defend the program, which has now received almost $700 billion in congressionally appropriated funds, because it is meant to give taxpayer-backed, forgivable loans to companies if they retain or rehire workers during the pandemic. After more than 26 million Americans filed unemployment claims in less than two months, policymakers are trying to come up with programs to keep people employed.

But the program -- known as the Paycheck Protection Program and operated by the Small Business Administration -- has been overwhelmed, because of both a surge in applications and the uneven process by which some companies receive loans and others do not. Within an hour after the SBA reopened its online portal, known as E-Tran, for submissions Monday, banking officials began to complain that the system was either not working or was painfully slow.

"Trying to do hundreds of PPP loans and Etran immediately crashed! So frustrating not to have access funding for so many small businesses!" tweeted Cynthia Blankenship, corporate president of Bank of the West, a small community lender in Texas.

Rob Nichols, president of the American Bankers Association, wrote on Twitter that bankers were "deeply frustrated" and that "we have raised these issues at the highest levels."

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The Lakers' decision to return the loan, which was for $4.6 million, comes after the SBA said Monday that more than $2 billion in small-business loans to companies during the first round of funding has already been returned or declined by companies.

It was unclear if any other professional sports franchises received these loans. The NBA left the decision to apply for an SBA loan to its individual teams, according to people with knowledge of the situation who were not authorized to speak publicly.

At least $500 million of that figure went to large publicly held companies, according to a Washington Post analysis of Securities and Exchange Commission records. The program was initially funded with $349 billion, which ran out in less than two weeks.

The SBA has denied a request by The Post under the Freedom of Information Act to disclose the recipients of these taxpayer-backed loans. Some companies voluntarily revealed their participation or had to publish their loans as part of SEC filings.

                                                                                                                                                                                                                       
 

In the face of mounting criticism, the Treasury Department and the SBA, in a joint statement on Friday, emphasized the program's potential to create and preserve jobs.

"The Trump Administration is fully committed to ensuring that America's workers and small businesses continue to get the resources they need to get through this challenging time," the statement reads.

But after the first $349 billion was extinguished, Treasury announced it was tightening rules to make it much harder for publicly traded companies or firms with access to outside money to participate.

Concerns remain about whether the bailout funds will be cornered by industry insiders and large businesses that already have access to cash. At least 140 publicly held companies received funds from the first round of PPP loans, including large restaurant chains, a Fortune 500 auto retailer and a pharmaceutical company with $14 million in cash.

The program's rules were initially written in such a loose way that many companies qualified for the benefits, not just those traditionally considered to be "small" businesses.

In a statement, the Lakers said: "Once we found out the funds from the program had been depleted, we repaid the loan so that financial support would be directed to those most in need. The Lakers remain completely committed to supporting both our employees and our community."

The news about the Lakers returning the loan was first reported by ESPN.

Meanwhile, experts said they expect the funds to run out within days.

"In the time since the previous round of funding ran out, businesses and banks have used this time to prep and perfect applications," said Juleanna Glover, a Washington, D.C.-based corporate public affairs adviser tracking the program.

"Once the application portal reopens, there will be an immediate flood of tens of thousands of applicants. Maybe millions. I'd be surprised if this next tranche lasts even 72 hours," Glover said.

Lenders say they have thousands of applications cued up, and some have developed technology to make it easier to file loan applications in the SBA's computer systems. JPMorgan Chase and Bank of America, two of the country's largest banks, say they have tens of thousands of applications prepared. JPMorgan was the top lender in the first round of loans under the Paycheck Protection Program.

The program's electronic infrastructure has consistently struggled to handle the barrage of loan applications, in some cases making it hard for small businesses to apply for loans. Banks continued to vet applications after the initial funding ran out, and industry officials warned that demand could quickly overwhelm SBA's computer system.

Tab Bank in Utah more than doubled the 10 employees dedicated to manually submitting applications into E-Tran for the second round of funding. The first time, the bank completed fewer than 90 loans before the money ran out. This time it has 1,200 applications ready and 800 more being processed.

But by early afternoon Monday, Tab Bank's army of employees had succeeded in pushing just five applications through the system. The system repeatedly has crashed, stalled and kicked out employees attempting to submit applications, said Curt Queyrouze, the bank's chief executive.

"I have been sitting here, watching my screen, refreshing for three hours," said Queyrouze, adding that he had been working on a single application for a small business with just three employees all morning. "The entire time we've been talking, it's said 'load.' "

Some bank employees may be asked to rest now and stay up all night submitting applications, Queyrouze said. "It sounds crazy, pulling all-nighters, but we're going to fight for these small businesses," he said. "I don't know when the money is going to run out, and we're going to give it our all."

"The frustration level is extremely high today," Queyrouze said. "We knew there would be issues with the volume" but this is worse than expected.

SBA press director Carol Wilkerson said the agency had warned small businesses that system problems could occur.

"SBA notified lenders yesterday that pacing of applications into the E-Tran system would occur, meaning all lenders would be able to submit at the same rate per hour," Wilkerson said. "The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-Tran system. If a lender goes above the pacing limit they will get timed out."

The Paycheck Protection Program was a major component of the $2 trillion federal stimulus law meant to combat the economic crisis brought by the coronavirus. The program empowers banks to offer federally subsidized loans at terms unavailable on the private market. Borrowers get an interest rate of just 1% and can have the loan entirely forgiven if they keep paying employees through the crisis. Small businesses are allowed to self-certify that they qualify for the funds, allowing lenders to bypass much of the paperwork usually required for loan approvals.

Despite glitchy IT systems, a chaotic regulatory process and a disappointing lack of cooperation from some big banks, the initial rollout succeeded in quickly pumping hundreds of billions of dollars into a struggling small-business community. It couldn't immediately be learned, though, how many of those companies rehired workers as the law had intended. The SBA and the Treasury Department estimate that more than 1.66 million small businesses were helped by the program, supporting over 30 million jobs, according to the SBA.

Concerns remain that too much of the funding went to industry insiders or businesses that should have found funds elsewhere. Some lenders limited their lending activities to businesses with which they had existing relationships, raising concerns that too much of the funding went to those who had an inside track.

Nearly 80% of the small businesses that applied for a loan were still waiting for an answer when the first round of funding ran out, according to a survey by the National Federation of Independent Business.

The Main Street Alliance, an advocacy group representing small businesses, argues there are still serious problems with the program.

"The dangerous inequities we saw with the first round will not be resolved" in the second round of funding, the group's executive director, Amanda Ballantyne, said. "With funding likely to run out in 48 hours, it is ludicrous that Congress thinks it has already done its job supporting small businesses."

Last week, several large hotel and restaurant chains paid back their PPP loans after public backlash. Restaurant chains Shake Shack, Kura Sushi and Ruth's Chris Steak House announced they would pay back the money.

Congress and the SBA have taken limited efforts to ensure that the next round of funding is distributed fairly. This funding includes money specifically set aside for minority-owned businesses. The SBA has warned publicly traded, well-capitalized companies that they are unlikely to qualify, giving them until May 10 to pay back any money received under the program.

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