The recently passed Coronavirus Aid, Relief and Economic Security Act (CARES) included a potential lifeline for small businesses, a $ 349 billion loan program called the Paycheque Protection Program (PPP). The P3 Loan is designed to help small businesses keep their doors open during a time of social distancing and mandatory business shutdowns.
Unfortunately, tThe program was rushed through the implementation process and was pushed live before the banks had the capacity to create process for accepting and funding these loan applications.
The CARES law was enacted on Friday March 27, 2020. The Small Business Administration (SBA) and the Treasury announced that the first day banks accept PPP loan applications would be Friday April 3, 2020, just one week after the law . was successful. the Provisional final rule, which provides guidance on how the program will be carried out, was released on the evening of Thursday, April 2, 2020, just hours before the deadline for banks to start accepting loans.
Many banks were simply not ready to handle this program
While some smaller banks immediately started accepting applications for PPP loans, many large commercial banks have informed their customers that they are not currently accepting applications. Many other banks limited applications to current customers only.
Some banks have even gone so far as to limit applications to customers who have both an established bank account and an existing loan product, such as a small business loan, business credit card, or business line of credit.
This latter limitation is particularly frustrating for small business owners. Eric Isham is the founder and CEO of OMNICOMMANDER, a veteran-owned website design and marketing company based in Florida and Tennessee. His bank denied him the opportunity to apply for the loan, even though he is a long-time customer.
Eric said, “When I tried to apply for PPP through my bank, I was told that since I did not have a credit card or a loan from the bank, I was not eligible . Several business accounts and years of activity together were not enough.
He continued, “Like any other small business owner, I am very concerned about what a prolonged economic shutdown would look like and how it would affect my small business. I have 38 employees who all expect to receive their paychecks every 2 weeks, and we have made a commitment to all of them not to fire anyone.“
Small business owners are frustrated and don’t know where to turn
Philip Taylor is the founder of FinCon, a financial press conference that regularly attracts over 2,000 participants to its annual conference.
He said, “It was frustrating to find the best way to apply for the PPP. Specifically, which bank I need to work with (my bank has been slow to implement) and what exact information will be needed (it seems that each bank asks for different supporting documents). It all happened so fast and you can tell some banks and government agencies are grappling with the speed and nuanced nature of delivering $ 350 billion to struggling small businesses. It’s like building an airplane while you fly it.
As an industry leader, Taylor hears the frustrations of many small business owners in the financial media space. The most common frustration they cite is the lack of clarity regarding the inclusion of 1,099 contractors in their salary cost calculations. It is common for many small businesses to pay their team members on a contract basis.
Who can small businesses turn to if their bank does not accept PPP loan applications?
The SBA has announced that business owners can apply to any lender participating in SBA 7 (a) or through any federally insured depository institution, federally insured credit union or institution of the agricultural credit system.
However, many banks are currently limiting PP loan applications to current customers.
If this describes your bank, then you have several choices:
- You can wait for your bank to start accepting PPP loan applications;
- You can try to open a new bank account elsewhere;
- or you can apply through another participating SBA 7 (a) lender. Some companies specializing in small business loans have already streamlined the application process for this program.
There are pros and cons to each of these options.
Should small business owners wait for their bank to start accepting applications?
Although the program is open until June 30, 2020, funds are limited. the CARES Law included $ 349 billion to help small businesses. In the middle of the first day, Steven Mnuchin, Secretary of the Treasury, tweeted that more than $ 1.8 billion in PPP loans had already been processed, mostly from community banks. Some large banks had already received large amounts as well, but were not included in these numbers.
Waiting is an option, but it is not without risk. The SBA expects this program to be oversubscribed and funds could run out in the coming weeks.
Should Small Business Owners Open An Account Elsewhere?
With many banks limiting access to current customers, opening a new business bank account is an option. However, this can be time consuming, as opening a business bank account can take longer than opening a personal account, which can be opened online in a matter of minutes.
In addition, some banks limit loan applications to customers who were already customers before the loan was announced. If you decide to open a new bank account, be sure to clarify whether or not you will be able to apply for the PPP loan.
Finding another participating SBA 7 (a) lender is another option
The SBA does not limit PPP loan funding to banks. You can try to find another lender who will finance these loans. The SBA website contains a list of top 100 most active 7 (a) SBA lenders.
At this point, it may be helpful to go through this list to see which lenders are accepting applications right now.
Will the PPP loan program run out of funds?
At this point, it is almost a given that the funds will be exhausted. The question is when? And at the moment, no one knows when that will happen.
In addition to the numbers tweeted by Steven Mnuchin, Bank of America tweeted that they have dealt over $ 6 billion in PPP loans from the first day of the program.
At the time of this writing, the total amount of loan applications processed has not been made public.
Will the PPP loan program have access to more money if the funds run out?
This is still unknown at this point. However, President Trump tweeted, in part, “I will immediately ask Congress for more money to support small businesses under #PPPloan if the allocated money runs out.“
Small business owners should not bank on this program to access more funds when they are depleted. But they should know it’s already on the government’s radar.