Lenders struggle to deliver virus aid to small business

Bloomberg

Lenders face continued difficulties in issuing financing under the $349 billion small business relief effort the Trump administration launched a week ago in response to the coronavirus outbreak, leaving mom-and-pop firms at growing risk of failure.
Banks have been intermittently shut out of the government’s loan-processing system. They’re manually filling out forms — and are forced to start over if the network freezes. Lenders are especially galled over unclear guidance and confusing paperwork: after questioning the use of a sample loan form dating from 2002, they were told they could use their own documents instead.
“We’re all for the program — everything about it in theory is right,” said Heidi Brown, executive vice president of Citizens State Bank in Iowa. “But it’s like being sent out to build a house with only three tools in the tool box.”
Customers are coming in or calling constantly because they have either been forced to close or dramatically reduce hours, Brown said, and they’re concerned. “They’re desperate to get in line for the help. Unfortunately we can’t answer all their questions.”
Time is short to rescue small businesses. Filings for US jobless claims reached a three-week total of almost 17 million on April 9. Lenders, who’ve been flooded with applications, reported difficulties executing the program from the start, meaning funds are only trickling to firms a week after the initiative launched.
The Paycheck Protection Program, run by the US Small Business Administration, is a signature part of the $2.2 trillion stimulus enacted in March to contain the economic damage from the pandemic. It offers loans of as much as $10 million that become grants if the money is used for payroll and certain other expenses in the next two months.
The SBA said that more than 661,000 loan applications, totalling more than $168 billion, have been approved as of April 10, but there are no data on how much has actually reached business owners desperate to stay afloat.
Many banks are saying they have a “decent amount” of loans approved, but have yet to actually distribute it, said Julie Huston, chairwoman of the National Association of Government Guaranteed Lenders, who leads an SBA-approved lender called Immito LLC.
The initiative, which was created and launched in a matter of days, is more than 10 times what the SBA’s flagship loan program oversaw last year. Advocates said the agency is trying to get it running smoothly and there were bound to be glitches.
“SBA, working closely with Treasury, launched an unprecedented $350 billion assistance program in just one week,” spokesman Jim Billimoria said in a statement. “This is a historic achievement in an incredibly short amount of time. During this time, issues identified by lenders and borrowers have been quickly resolved.”
JPMorgan Chase & Co. and other banks weren’t ready to lend money initially after the Trump administration didn’t provide guidance on processing loans for the program until hours before it started on April 3. Many didn’t take applications from borrowers who didn’t have an existing lending account. Wells Fargo & Co., historically one of the largest lenders for small businesses, had to stop taking applications for a time because of a regulatory cap, which was eased last week.
Some lenders were also wary about their ability to resell the loans for needed liquidity. The Fed helped address those concerns Tuesday when it announced a program to provide financing against the loans.
Treasury Secretary Steven Mnuchin assured borrowers: “You get the money. You’ll get it the same day. You use this to pay your workers. Please bring your workers back to work if you’ve let them go. You have eight weeks plus overhead. This is a very important program.”
President Donald Trump defended the program on Thursday, saying billions of dollars’ worth of loans are being processed and bankers will be paying out the money “in the very near future.”
“I’m hearing it’s a very, very successful rollout,” Trump said. “They did want changes in application