Bumpy start to small business COVID-19 loan program - 13abc Action News

Bumpy start to small business COVID-19 loan program - 13abc Action News

Bumpy start to small business COVID-19 loan program - 13abc Action News

Posted: 03 Apr 2020 09:32 AM PDT

There is now substantial financial help for small businesses. The federal government is allocating $376 billion dollars for small businesses.

This will allow them to apply for loans to cover their payroll and overhead for two and a half months during the shut down.
The loans will be forgiven if 75% of the money is used for this purpose.

The challenge to this point has been the lack of solid guidance from the SBA to banks in administering the loans.
Because of the high volume in applications, the SBA is working with banks and credit unions in dispersing the money.

Bob LaClair is the Regional President of Fifth Third Bank. "It happened so quickly and there are not too many companies that are immune to this," says LaClair.

"I think conceptually, everyone understands the benefit to the borrower or the small business owner. But the execution has been a little cloudy."

Given that regional banks like Fifth Third are expected to be able to roll the program out early next week to customers.
The pool of customers has expended beyond the regular pool of for-profit companies.

Collin Gilstrap is an Assistant Professor of Finance at UT. "Now they're expanding this to also non-profits, they're also expanding it to sole proprietors and they're also expanding it to 10-99 employees."

So as long as 75% of the loan is spent on salaries and overhead from April 3rd to June 30th, it will be forgiven, so it's effectively a grant.

"The businesses that take advantage of these loans will have the entire loan forgiven for covering their payroll and their payment for rent and mortgage until the end of September."

SBA Lending Programs
New lending begins Friday
Business, non-profits, sole proprietorships, and independent contractors with less than 500 employees
Firms larger than 500 may also apply if they are in certain industries


Economic Injury and Disaster Loan (EIDL)
Working capital loans of up to $2m

Big U.S. banks start accepting small business aid requests - Reuters

Posted: 03 Apr 2020 10:45 PM PDT

(Reuters) - Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N) are now accepting applications for federally backed small-business loans, a sign that big U.S. banks have warmed up to the relief program after initially resisting participation.

FILE PHOTO: A Bank of America logo is pictured in the Manhattan borough of New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri

Bank of America was the first major bank to announce its involvement in the $349 billion Payroll Protection Program on Friday, saying it had processed tens of thousands of loans within just a few hours.

JPMorgan followed around noon, saying customers could apply through its website. Earlier in the day, it had warned small business customers that it could not accept applications until receiving guidance from the U.S. Treasury Department.

Wells Fargo & Co (WFC.N) and Citigroup Inc (C.N) did not have their online portals running by Friday afternoon.

While smaller banks were already participating - helping the Treasury Department originate nearly $900 million worth of loans soon after its program kicked off - those four lenders touch a huge portion of U.S. households, and can get money out the door much more quickly to customers who already have accounts with them.

But they were reluctant to participate in the program because initial guidelines from the Treasury Department suggested lenders would be responsible for vetting applicants - and therefore might be on the hook later for fraud or other misdeeds that occur.

The industry threatened to boycott the program unless the government addressed those concerns, Reuters reported here on Wednesday.

Small businesses employ about half of the workers in the U.S. private sector. They have been hit hard during the outbreak of the new coronavirus, as cities and states have shut down non-essential businesses, creating painful job losses and a sharp decline in spending.

Congress approved a $2 trillion stimulus package last Friday that included the small-business program, with Trump administration officials promising to get money out to people within days of its launch.

But banks, which are handling aid requests, lacked guidance on how the program should work until a few days ago. In the meantime, confused customers flooded their phone lines trying to apply.

Critics have attacked big banks for the industry's lack of enthusiasm about the program, noting that the industry has received its own assistance for weeks through the Federal Reserve's multitrillion-dollar support for markets during the coronavirus rout.

U.S. Senator Marcio Rubio, the key sponsor of the small-business initiative in Congress, lashed out at Bank of America on Friday despite its recent participation.

He cited an unnamed small business that was denied a loan because it had deposits but not an existing credit line with the bank. Bank of America Chief Executive Brian Moynihan had said earlier in the day that his company was prioritizing existing borrowers, and that others should try their own banks first.

Rubio called that idea "a ridiculous requirement that isn't anywhere in the law."

Reporting by Imani Moise and Elizabeth Dilts-Marshall; Writing by Lauren Tara LaCapra; Editing by Steve Orlofsky, David Gregorio and Jonathan Oatis

Thousands flood banks as federal small-business loan program has a chaotic first day - The Washington Post

Posted: 03 Apr 2020 03:21 PM PDT

Wells Fargo, Citigroup and PNC said they were still reviewing the program's rules, which were released by the Treasury Department and Small Business Administration just hours before the program's launch. JPMorgan Chase, the country's largest bank, didn't begin accepting applications until 1 p.m., after initially saying it wouldn't be ready at all Friday.

Bank of America was one of the few big banks that began taking applications Friday morning, earning the praise of President Trump. "Great job being done by @BankofAmerica and many community banks throughout the country. Small businesses appreciate your work!," Trump said on Twitter.

But the Charlotte-based bank faced backlash from some customers for initially limiting its application pool to businesses with which it already had a lending relationship. "I have worked hard not to have a lot of debt, I feel like I am getting penalized," said Don Allensworth, whose company, the NewGround Group, has fewer than five employees. "We're on the border right now; there is no way to know what the next 90 days will hold, for my clients and for my income."

The emergency lending fund, known as the Paycheck Protection Program, is a cornerstone of the $2.2 trillion economic rescue package Congress passed last week. The Trump administration rushed the program's development, promising small businesses would receive loans the same day they made their applications, an unprecedentedly quick turnaround for a government-backed lending program. But the guidelines for the program were not finalized until late Thursday night.

The new loans "will bring immediate economic relief and financial certainty to millions of small businesses & their employees," SBA administrator Jovita Carranza said on Twitter Friday afternoon.

Carranza and Treasury Secretary Steven Mnuchin reported nearly 13,000 applications had been processed, adding up to more than $2 billion in loans, by Friday afternoon. The SBA did not answers questions about how much money had been disbursed.

"The system is up and running," Mnuchin said in a tweet, crediting community banks with pushing hundreds of loans. "Great work!!"

Paycheck Protection Program loans are designed to be particularly favorable to borrowers, with ultralow interest rates, no payments for the first six months and the opportunity to have the loan completely forgiven if employees can be kept on the payroll throughout the crisis. And the loans will apply to a broad swath of the U.S. business community, including sole proprietors and independent contractors.

Reports that the program was getting off to a rocky start frustrated some lawmakers.

"Please don't be a bunch of jerks. When you needed the country to help you they did," he said, referring the 2008 global financial crisis when banks took billions in taxpayer bailouts. "Now the country needs you to help them and we're paying you to do it, and it's the government's money, it's the taxpayers' money."

Banking industry officials have warned that the abbreviated review process the Trump administration set ― which allows borrowers to attest to their own eligibility without government verification ― will make the program a magnet for fraud. Although the SBA will be able to audit lenders and borrowers later, it will fall primarily to private bankers to make decisions about who should receive the taxpayer-backed loans.

"This is an unprecedented expansion of SBA lending that will take some time before it's fully functioning," said Rob Nichols, president of the American Bankers Association.

The government is guaranteeing 100 percent of the loan's value, meaning banks are repaid by taxpayers if the business fails to repay the loan. But community banks are also concerned about the loans' low interest rate, which was increased from 0.5 percent to 1 percent following complaints from banking associations. The law allows for a maximum interest rate of 4 percent.

In a mark of the frenetic pace with which federal agencies are trying to get money out the door, final regulations for the program were not released until just hours before the program was scheduled to begin.

The federal guidance release addressed many of the industry's concerns. Banks aren't required to verify the accuracy of the documents a borrower submits with their application, removing the risk that the lender could be held legally liable for fraudulent behavior.

Still, the industry warned it would take time to fully implement.

"Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America's small businesses and the millions of men and women who work at them," Richard Hunt, president and CEO of the Consumer Bankers Association, said in a statement.

The program requires small businesses to spend 75 percent of their loan on keeping workers employed to have the loan forgiven. If not, the borrower may be forced to repay the loan and may not be eligible to have it forgiven. That may limit the program's appeal to some small-business owners

Small-business owners say they are in limbo and can't make critical decisions until the program is operational. Some worry that the fund — which officials say is first come, first served — is not large enough and that they might not get approved in time to claim their share.

Some banks' hesitation to jump into the program is frustrating, said Phil Rodocker, a real estate agent in Seattle who is seeking a loan.

"We gave them tons of money to bail them out back in 2008, and now they won't help us," Rodocker said. "They took the money … but now 10 years later the government is asking them to help and they are basically throwing the finger at us."

Bank of America, one of the few big banks to begin offering loans Friday morning, said it was moving quickly to meet loan requests. By the end of the day, it had received 85,000 applications for $22 billion in loans.

The bank has focused on its business customers with loans first but will be expanding access quickly, Dean Athanasia, the head of Bank of America's consumer business, said in a note to employees. "We will expand our process soon," Athanasia said.

Bank of the West, a small community lender in Texas, is juggling applications from hundreds of its own customers but also received calls from more than 300 small businesses with accounts at big lenders, including Bank of America, that aren't yet accepting applications, said Cynthia Blankenship, corporate president of the bank.

"They need to step up and stop hiding behind all of these excuses," she said of the big banks. "None of us are totally prepared for this but we're breaking our back to get prepared."

Redwood Credit Union in Santa Rosa, Calif., conducted a "controlled" test of the emergency lending system Friday with an application from one customer.

"We got the approval right away and funded" the loan, said Brett Martinez, the credit union's president and chief executive. "It was a controlled environment, we know the member very well."

Other applicants will have to wait until the SBA provides finalized loan documents before their loans are funded, and that is not likely until next week, Martinez said. "Getting dollars out early next week, we would see that as a win," he said.

SBA and Treasury Department officials say their priority is to get cash in the hands of struggling small businesses and avoid the normal seven-day review process.

"There really has never been a product like this in our history, with not only the streamlined nature but the fact that there is very little underwriting required in terms of personal guarantees, no collateral, no requirement for credit elsewhere," said Steve Bulger, an East Coast regional SBA administrator. "We are going to move forward as fast as we can because we know the need right now is to get the money out there."

Even after the emergency fund launched, there was conflicting information about basic issues with the program, said Brock Blake, chief executive of the Salt Lake City-based financial technology company Lendio. Lendio wants to offer loans through the program but is still reviewing the rules, he said.

"It will be a disaster out of the gates, but at some point we will plug the holes, fix the problems and overcome all of these miscommunications because we have to," Blake said. "Every day that we don't, someone is going out of business or laying people off."

Borrowers Report Problems as Small Business Rescue Program Rolls Out - Bay News 9

Posted: 03 Apr 2020 06:11 PM PDT

WASHINGTON — The roll out of the $350 billion small business loan program approved by Congress got off to a rocky start Friday, as thousands of business owners attempted to apply for desperately needed assistance with varying degrees of success.

  • Some banks insisting on prior existing banking relationship to approve loans
  • Banks, lenders scrambling to get loan programs in place with federal guidance on programs coming late
  • More Business stories

Aaron and Karen Scheeley are trying to figure out what's next after they were forced to close their business, Kids Zone Academy in St. Petersburg, a week ago.

"We're not getting the help the government promised," said Aaron Scheeley.

The couple has been eager to apply for the massive small-business rescue program approved by Congress but they were denied assistance from multiple banks on the first day of the program's launch.

"With Bank of America, unless you have a business loan with them or a credit card with them, they will not help you throughout the whole situation," Karen Scheeley explained. 

The Scheeleys have an existing banking relationship with the Bank of America, but they have not ever applied for a small business loan with the bank. They also attempted to apply for the loans with smaller, less established banks, but they didn't have any luck.

"Unfortunately, with the smaller banks you need to have a pre-existing account with them," Aaron said.

Some small business owners like Roberto Torres, who owns Blind Tiger Cafe are having a different experience. 

"The application process was simple, we downloaded a PDF and filled it out," Torres explained.

Torres' application was approved by Valley National Bank, which he has worked with in the past.

"We actually have an SBA loan with them already," Torres said.

Sen. Marco Rubio (R-Florida), chairman of the Senate Small Business Committee, said he anticipated it would be easier for small business owners to receive loans from banks where they already had an existing relationship.

"Yeah, and we expected that," he said. "But we recognize that there are so many people that need this help, that we are going to have to attract new lenders to be able to participate in this," he added.

Many banks and lenders have been scrambling to prepare for the overwhelming demand for loans while awaiting guidance from the government. Rubio is calling on larger banks like Bank of America to stop prioritizing existing customers. 

"That's a requirement that Bank of America created and I don't know why," Rubio explained. "There is no risk in the banks for this. We're paying them to do it, we're calling on them to change that."

When businesses will get their cash once loans are approved is still unclear.  However, time is running out, especially for those who are having trouble getting approved for the loans.

"If this continues longer, we have to file for bankruptcy, I don't know what else to say," Karen said.

Already $1 billion dollars in loans were disbursed on Friday. Rubio said he worries the funds could dry up more quickly than Congress anticipated.

"I do think that depending on level of utilization, there is reason to be concerned," Rubio said. "I think if we can get the program to work well, regulators and banks get it to work well, this can be the kind of program, because of how much support it has, that Congress, even if we are not in session, through a unanimous vote in the House and Senate, get additional monies put into it."


Popular posts from this blog

COVID-19: New business ideas emerge as people work from home - The Jakarta Post - Jakarta Post

6 Ways to Improve Your Small Business SEO in 2020 - Entrepreneur

5 Last-Minute Ideas for a Successful Small Business Saturday - Entrepreneur