When to expect your SBA loan: No timetable as system hit with computer, other delays

Employers whose survival depends on emergency loans under the new Paycheck Protection Program are flooding banks with applications and have with no timeline for getting the cash — with a source telling the Chicago Sun-Times on Tuesday the Small Business Administration has yet to issue guidelines some banks need to make the loans.

Banks willing to front billions of dollars are nervous because as of Tuesday, the source said, lenders were only getting “assurances on a conference call (that) are not sufficient to begin making billions of dollars in loans.”

The key feature of the PPP program — converting the loans to cash grants — depends on banks getting the paperwork from the SBA needed for all the parties to complete the deal. The banks need a written guarantee from the federal government they will get their money back.

“Without the official note language or authorizations, banks and small-business owners run the risk of loans not qualifying for forgiveness or guarantee under PPP,” the source said.

The source said the electronic information system, down earlier, was working Tuesday, though very slowly, and banks reported being kicked out multiple times while processing individual applications.

The desperately needed financial lifeline kicked off Friday, when banks started accepting applications.

At a White House conference Tuesday with leaders of the nation’s top banks, Bank of America CEO Brian Moynihan told President Donald Trump, “We’re up to about 250,000 applications at our company. We’re beginning to process those through to the SBA.”

However, there is a slowdown because, he said, “It will take an automated feed that the SBA is working hard to get set up.”

Trump, at his Monday COVID-19 briefing, bragged about how well the small business rescue program launched Friday is doing. That’s not what I heard after listening to questions and answers at a Monday briefing from the Small Business Administration Illinois District Director Robert Steiner at a webinar organized by Rep. Brad Schneider, D-Ill., a member of the House Small Business Committee.

Steiner, in reply to a question, could not provide an estimate of how long it would take to get cash after filing an application with a bank, which then has to be approved by the SBA. I am not dinging him. Steiner tried to be helpful. He did not want to give out misleading information or unrealistically raise expectations.

Schneider, who represents the north suburban 10th Congressional District, noted to the 400 people on the webinar that the kickoff was “not smooth.”

The $349 billion “Paycheck Protection Program” — known as PPP — is part of the $2.2 trillion Coronavirus, Aid, Relief and Economic Security (CARES) Act package. The PPP rescue is designed to shovel money to small businesses and nonprofits as fast as possible. Besides meeting payrolls, a portion of the PPP loan can be used to pay the employer share of group health care benefits; rent and utility payments; and interest on other loans and debts.

If you use the money as intended, you, the employer, will have that loan converted to a grant. That means you get cash and you don’t have to pay it back. No wonder banks were hit with a stampede of applicants Friday.

On Monday, Trump, asked about the messy start to the PPP said, “A couple of little glitches, minor glitches, that have already been taken care of. ” He went on to chastise a reporter who asked a follow-up question on the kickoff of the loan program.

No matter what you think of Trump as we live through this disaster, his uncontrollable bluster and his craving to pronounce everything he does as perfect is not useful as the economy is melting because of the coronavirus pandemic.

On Saturday, Trump, asked about the PPP rollout, said, “It’s been a flawless — it’s been flawless, so far. Far beyond our expectations. … I don’t even hear of any glitch. They’ve done billions of dollars of loans to small business.”

The launch was not flawless. There were speed-bumps. Part of the reason was the well-intended rush to get this program running.

After the CARES law was passed March 27, there still had to be rules written by the SBA on how exactly to execute the ambitious program.

Banks did not get guidelines — and they are only interim — from the SBA until, a banking source told me, Thursday night, giving them only hours to finalize their plans.

I’m told by another banking industry source that at times on Monday the electronic transmittal system was down and the backup system is not ready to go. And when the system is running, there have been major technical problems — including dealing with security measures.

Moreover, the SBA has not sent banks the promised language on what to put in the promissory note on disbursing funds. This is a big deal since the first money out the door for a PPP loan is from the lender, not the federal government.

Just to give you a sense of the demand, Bank of America, since Friday, received 250,000 applications from people seeking a combined $36 billion as of Tuesday.

There is also the fine print in the rules. Employers need to have a relationship with a bank in order to file right away. For Chase, all that meant was a checking account. On Friday, B of A also wanted some kind of a lending relationship, even if it was a credit card. By Saturday, that requirement was gone.

Anne Pace, the Chase managing director for communications, said, “We are accepting applications and have been since Friday. If a customer has submitted an application, they are in the queue and we will be in touch as soon as possible.”

Chase has 335 Illinois branches, including a part of Northwest Indiana.

Nick Simpson, a spokesman for the Consumer Bankers Association, said banks are “working around the clock to get this new program firing on all cylinders for small businesses and as we continue to work with SBA on receiving additional necessary implementation guidance.”