‘It’s a damn mess.’ Small businesses are struggling with the coronavirus and the federal loan process

CEO Bob Rivers of Eastern Bank says banks are "working as quickly as we can to process these requests.”Blake Nissen/The Boston Globe

Federal aid is slowly starting to flow to small businesses crushed by the COVID-19 crisis, but some company owners worry the bungled rollout of loan money will be too little and too late for them to survive.

Business owners say they have been stymied by a litany of hurdles, including a last-minute change to terms of the Paycheck Protection Program, which offers loans of as much as $10 million through the Small Business Administration to companies with fewer than 500 workers. The loans, issued through banks, can be used for salaries, rent, and other expenses and will be forgiven in amounts depending on how many employees can be kept or rehired.

Smaller banks have been generally more nimble at processing applications, while Bank of America and other massive institutions threw up roadblocks that infuriated longtime customers. Some lenders have not been participating, which prompted the Federal Reserve to announce a financing plan Monday that it said should encourage banks to jump into the program.

The process, for many, has created even more uncertainty in an uncertain time, with many wondering if the loans will actually be forgiven, or if they’ll just end up in business-ending debt.

“Every week we are losing millions of jobs, and every day counts,” said Michael Strain, an economist at the American Enterprise Institute who has been examining the small-businesses rescue plan. “Congress wrote the law to allow the banks to act as conduits to get this money out the door. The regulations need to proceed in that spirit.”

The government has touted the $349 billion program as a critical way to prop up an economy that’s been forced into hibernation by the coronavirus. Big banks, Strain said, should have been ready to accept applications Friday, and the Treasury Department must do more to cut the red tape — and quickly.

“Most of these businesses don’t have a large cash buffer,” Strain said. “We’re going to start to see businesses close up because they can’t pay the bills.”

Fearing the money would run out, many business owners rushed to prepare their loan applications as soon as the terms were released, only to learn late Thursday that important details had changed.

Sam Hendler, co-owner of the Jack’s Abby brewery, worked with MutualOne bank in Framingham to have all the documents ready so the company could be at the front of the line on Friday.

“We were all eager beaver,” he said. “We had it done and submitted on Thursday.”

By that evening, however, the SBA had released revised regulations that were far less favorable, and involved changing the terms of the loan from 10 years to two and increasing the interest rate. Hendler’s plan to obtain $1.2 million in funding didn’t work with that new math, so he resubmitted his loan application Friday for $700,000. Now he’s worried that the government will change its mind again.

“Any business has to assume they’re going to change all the rules on forgiveness,” he said. “It’s a damn mess.”

Jamie Kaye, owner of the Station Diner in Newton Centre, has been keeping close watch on the federal stimulus plans since he shuttered his restaurant about two weeks ago. On Friday, he called the SBA customer service line for guidance and was told erroneously that he had to apply for the funds that day, or else he’d be out of luck.

So he rushed to call his bank, Santander, only to learn it was not ready to accept applications.

“Everything about the rollout was poorly planned and administered,” Kaye said. "I was in shock that the administration would give the SBA an eight-hour window to allow for everyone to apply for the money to save their lives.”

Kaye eventually got an appointment with East Cambridge Savings Bank for this week, but he still has a host of questions: He owns his business free and clear, and every day he’s not open he goes deeper in debt. What if he borrows money and never catches up? How does he pay himself as the owner of a limited liability corporation?

“I cook hamburgers for a living,” Kaye said. “I’m being forced into understanding small-business loans and grants, and I’m not entirely sure what I’m asking for.”

Massachusetts Senators Elizabeth Warren and Ed Markey submitted a letter to Treasury Secretary Steve Mnuchin Monday criticizing the rollout of the SBA loan plan, and expressing concern that the funds allocated in the Payroll Protection Program will be quickly depleted.

“As the program went live last week, issues with the program immediately became clear,” they wrote, outlining the many delays that arose at large banks such as Chase, Wells Fargo, and others. “We urge you to move quickly to issue additional guidelines and clarifications to ensure that loans are disbursed quickly . . . The ability of small businesses to access this money in a matter of days could determine whether or not they will need to shut their doors to their employees and customers forever.”

Patty Houpt, whose nonprofit has banked with Bank of America and its local predecessors for four decades, was outraged when the bank refused on Friday to process a request for a $63,000 loan because it only had a checking account at the bank.

After a public maelstrom, Bank of America has since relaxed its rules to allow for existing customers to participate in the SBA program, as long they don’t have a loan with another bank. Houpt said Monday morning that Bank of America accepted her loan application, but she is still angry.

“They did not honor the intent of the legislation. The intent was to help with small businesses. They did it with an asterisk,” said Houpt, executive director of New England Employee Benefits Council. “It makes me question my relationship with them. Are we better served by a local partner?”

Bank of America, the largest bank in the state by market share, has started processing more than 183,000 applications nationally, totaling $33 billion in loan requests.

Citizens Bank, the Commonwealth’s second-largest bank, said it was able to start accepting applications Monday for clients that have already submitted their contact information. Santander Bank, meanwhile, said its “application will be live soon.”

As of Monday morning, Eastern Bank had received more than 4,000 applications, representing more than $800 million worth of loan requests, far more than executives at the Boston bank expected. Eastern’s CEO, Bob Rivers, said those numbers are likely to increase significantly.

“It’s going to be frustrating for customers,” Rivers said. “Eastern and every other bank is working as quickly as we can to process these requests.”

Smaller local banks were able to act fast in large part because they have the ability to process loans manually, said Sushil Tuli, chief executive of Leader Bank, based in Arlington.

Tuli said the bank launched a website, leaderbizloans.com, just after midnight Friday and did not restrict the process to existing customers. As of Monday afternoon, the bank had received 380 applications seeking nearly $60 million in loans.

Tuli said he had 11 employees plus a management team working all weekend to submit about 100 applications for a total of $30 million to the SBA in order to secure guarantees in the program. Tuli expects to start closing these loans and disbursing funds as soon as Wednesday.

Tuli didn’t know how many small businesses would seek money from Leader, but he was struck by how fast owners lined up for money.

“It means that people need help very quickly,” he said.

Jon Chesto of the Globe staff contributed to this report.