SBA sets cap on amount of relief loans banks can process

Bloomberg

The US Small Business Administration (SBA) is capping the value of loans individual banks can arrange under a federal economic relief program for small businesses after a fresh infusion of funding.
The move reflects concerns among advocates for small businesses that the biggest US banks, which are ready to flood the SBA with applications, could dominate the lending and prevent money from getting to the mom-and-pop shops that need it the most.
The SBA announced it’s limiting the maximum dollar amount of loans each bank can issue to $60 billion, or 10% of $600 billion allocated so far in two rounds of funding for the Paycheck Protection Program. The cap is intended is to help all lenders have equal access for their small business clients, the SBA said.
The program, which relaunches after the initial funding of $349 billion ran out in just 13 days, allows for loans of as much as $10 million per borrower and is meant to help small businesses affected by the coronavirus pandemic keep workers on their payrolls. Congress approved an additional $320 billion for the program last week, including $10 billion for bank fees and processing costs.
Congress also set aside $60 billion for small financial institutions with $50 billion or less in assets to ensure more access for true mom-and-pop firms, and the cap is exclusive of that amount, SBA said.
The rollout of the program caused an uproar when it emerged that big national chains including Potbelly Corp. and the operator of Ruth’s Chris steak houses landed $10 million or more apiece in loans thanks to a loophole, while millions of very small businesses were left stranded when the program ran out of money.
Advocates for small businesses are concerned the additional funding could also be exhausted in a matter of days, won’t be enough to meet demand, and might not reach the entities that need it the most. Applications are processed on a first-come, first-served basis — a procedure criticised on Sunday by Bank of America Corp. CEO Brian Moynihan.
The largest US lenders have been preparing a barrage of loan applications since the first round of the program ended on April 16. JPMorgan Chase & Co., which arranged the most loans in the first round at $14 billion, had fully processed about $13 billion or more as of Wednesday. Wells Fargo & Co. has said it invited more than 450,000 customers to apply for a total of about $50 billion of financing, after arranging a mere $120 million in the first round.
“We have mobilised thousands of employees and launched new technology to assist customers seeking access to the PPP,” Wells Fargo spokeswoman Kate Pulley said in a statement.
Bank of America has about $50 billion worth of requests, Moynihan reiterated Sunday on CBS’s “Face the Nation.” The firm had only arranged roughly $5 billion when the initial funding was depleted, people with knowledge of the matter have said.
The Independent Community Bankers of America supports the change to ensure available funding is spread among the more than 5,000 lenders approved to participate in the program, said Paul Merski, who oversees the group’s work with Congress.
The changes SBA announced on Sunday also include allowing lenders to send at least 15,000 completed applications in one batch. The agency’s E-Tran system was overwhelmed by the volume during the initial round and was often inaccessible, delaying the processing of some loans.
Those applications won’t be processed until after 10:30 a.m. New York time on Monday, and they’ll be handled individually even though they’re submitted in bulk, SBA said.