The first major federal program to help companies slammed by the coronavirus shutdown got off to a rocky start Friday as many small-business managers applying for bank loans were told they would need to wait a few days.
The banking industry braced for a tidal wave of applications for the $349 billion Paycheck Protection Program approved by Congress last week. But many bankers called for patience, saying it might take days to begin processing loans. Guidance from the federal government didn’t arrive until Thursday night, and many banks did not have time to re-engineer their systems for the Friday launch.
The program is aimed at preventing businesses from laying off workers while the nation goes into self-imposed shutdown to contain the spread of COVID-19. Companies with 500 or fewer employees can borrow as much as $10 million, depending on the size of their workforce, with a 1-percent interest rate; much or all of the debt would be forgiven if they keep workers on their payrolls for a eight week period.
The Trump administration said the money would be doled out on a first-come, first-serve basis, fueling the intense rush to apply before the program runs out.
Evan Falchuk, chief executive of Boston-based human service provider VillagePlan, said he called nearly 10 banks on Friday. None were accepting applications yet, and Falchuk is worried the federal money will dry up before he has a chance to borrow.
“Pretty much every small and mid-sized business in America needs that, given what’s happening right now,” Falchuk said. “The tone among business folks I know is frustration and some anger that the government doesn’t have this worked out.”
Bank responses were widely uneven throughout the day on Friday. Some were processing applications, but many said it would not be possible until next week.
“I think everyone is going to have a hard time doing this [quickly] because we have such a short turnaround time,” said Quincy Miller, president of Eastern Bank.
Miller said Eastern set up an online portal to collect customers’ information in advance, and the bank planned to start processing applications early next week. He expects Eastern’s typical loan size will be around $100,000; the bank had fielded thousands of requests during the past two weeks.
Citizens Bank, the second largest in Massachusetts, also created a web page for customers to leave information and be contacted later. Other local banks had notices on their websites advising customers to check back regularly for updates.
Berkshire Bank plans to start processing applications Monday. The bank needed time to adjust its internal operations to the new federal guidelines. “This is our time to step up and help,” said Greg Poehlmann, senior vice president at Berkshire. “We just want to do it right.”
Some banks were able to pull it off, though. By Friday evening, the US Small Business Administration said more than 13,000 loans had been approved, with a value of $4.3 billion.
Bank of America was among the first major banks to do so, with its window opening at 9 a.m. on Friday. By 4 p.m., the bank had begun processing more than 75,000 applications, totaling more than $7 billion in requests.
However, BofA, the largest lender in Massachusetts, said it is limiting access for now to existing business customers that have both a checking and lending relationship with the bank. As a result, numerous entrepreneurs pilloried the bank on Twitter, after their applications had been rejected. A spokesman said BofA will soon begin to respond to small-business customers that don’t have a borrowing relationship with the bank.
At least two local community banks said they were accepting applications on Friday. South Shore Bank chief executive Jim Dunphy said he will have 15 people working through the weekend to process loans.
“Nothing is without risk when you’re rushing this through, but we wanted to do our part to get the money out,” Dunphy said.
Perhaps the biggest question is how long the money will last. Joe Campanelli, CEO of Needham Bank, said he has heard anywhere from hours to weeks. His bank was taking newcomers as well as existing clients: “We’re not going to pick and choose [which company is] going to survive."
But many experts, such as attorney Jeff Morlend at law firm Sullivan & Worcester, were advising clients to stick with their current banks, to ease the processing time, in part because the banks are already familiar with the businesses and have their information on file. “Time is critical,” he said.
The National Federation of Independent Business estimated half of all small businesses can’t last more than one or two months under the current conditions. “Business owners can’t wait any longer,” said Chris Carlozzi, NFIB’s Massachusetts director. “They need some sort of relief immediately.”
Rockland Trust chief executive Chris Oddleifson said he expects to begin accepting applications within a few days. And, not a moment too soon, as he doesn’t expect the $349 billion to last long.
“The demand is huge, absolutely huge,” Oddleifson said. “I’ve got people who are going through friends to [reach] me, getting texts, emails, phone calls. It’s coming at me from all different directions, fast and furious.”