The federal government enacted in late March legislation to help small businesses suffering from the COVID-19 crisis. The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) provides for the availability of $349 billion in Small Business Administration (SBA) loans.
There are currently two types of loans available: Economic Injury Disaster Loans (EIDL) and Paycheck Protection Loans (PPP).
The goal of the government was to get these loans into the hands of business as quickly as possible. But there have been delays in implementing the processes for issuing these loans. The overwhelming majority of businesses have not received any funds.
Two issues have caused the holdup: First, banks are concerned that the regulations aren’t clear enough, and they need protection against fraud and (without expressly saying it) bad debt at the end of this crisis. Second, the process requires the SBA to review all loan applications and it is dealing with an unprecedented volume.
The following are the top 10 questions and answers about these loans:
1. What is the status of the PPP loans?
On a call with Vice President Pence and SBA Administrator Jovita Carranza, hosted by the NFIB on April 7, 2020, Carranza stated that banks have held up disbursing funds as they wait for more clarity on loan guaranties and other regulations around the CARES Act. Banks are concerned about fraud as they claim the PPP loans don’t require the usual amount of background information or creditworthiness that come with conventional loan applications.
Former Fed Chair Janet Yellen told members of Congress this past week that banks need a “safe harbor” to protect them against fraud claims. The bankers have told the government that there’s also a need for a slower process with more due diligence.
2. When can I reasonably expect the loans to be funded?
At this point, it is impossible to tell, but likely it will be a longer time frame than expected. If the banks do not receive some kind of assurance or “safe harbor” against future liability, they may sit on some applications or funds. And, perhaps more important, the SBA has to review the applications and approve them before banks can write promissory notes and release funds, and that could cause major delays.
In a typical year, the SBA processes about 1,000 loan applications for $20 billion; to date, approximately 250,000 PPP loan applications for the $349 billion program have already been filed. While the SBA is trying to outsource and ramp up, it could take weeks or longer.
3. What process are lenders going through to approve loans?
Each lender was able to set up their own process and requirements for loan applications. For example, BB&T and SunTrust, now Truist Bank, set up an online portal to receive applications. It required a Borrower Application Form, 2019 tax returns, proof of payroll, and IRS Form 944, among other documentation.
In an email to customers, the bank stated that it is reviewing applications in the order received and that the SBA also needs to review the applications, something that is out of the bank’s control. In addition, it stated that if more documentation was necessary, the customer would need to provide it. At that point, they may be moved to the end of the queue of applicants due to the delay.
4. Should I apply for the PPP loans through multiple banks and see which one is faster?
At this point, most banks are only taking applications from existing customers due to the fraud concern, so this isn’t even possible. If banks open up to non-customers, it is still not advisable to submit multiple applications. The regulations only allow for one PPP loan per business, therefore, applying through multiple banks could cause confusion or even fraud alerts down the line.