Well, now we know what happens when the government tries to hand out $349 billion to businesses across the country as quickly as possible: a modern-day gold rush.
Instead of prospectors hoping to strike it rich, this mad dash consists of small-business owners desperate for help during the economic meltdown caused by the coronavirus crisis.
The billions approved by Congress would allow small businesses to take out cheap loans of up to $10 million to keep workers on their payrolls; most or all of the debt could be forgiven if employee retention goals are hit. However, hitches seemed inevitable given the speed of the rollout.
Banks are processing the loans, which need approval by the Small Business Administration, a federal agency already swamped by requests for its preexisting disaster loan program. How swamped? The National Federation of Independent Business polled members this week, and reported that no respondents had received any disaster loan funds or related emergency grants yet.
An SBA spokesman couldn’t say how many had applied for that program, although he said the grants of up to $10,000 each are starting to go out. CNBC reported nearly 4 million businesses had sought disaster loans as of Thursday night, for a total of $383 billion in requests — compared to $17 billion in funding.
Meanwhile, it’s a race against time at the new Paycheck Protection Program. As of Thursday afternoon, the SBA had approved more than a half-million applications, totaling $130 billion worth of loans in the week-old PPP. That figure doesn’t come close to reflecting all the loans awaiting approval in the pipeline.
The money could soon run out. Barry Sloane, chief executive at Century Bank, said he wouldn’t be surprised to see the number clear $300 billion within four days. One complicating factor: the SBA’s system has been prone to temporary shutdowns, he said, often delaying loan approvals for hours.
Congress tried on Thursday to throw an extra $250 billion into the pile. That noble effort collapsed amid partisan disagreements in Washington.
Santander, the third-largest bank in Massachusetts, didn’t even start accepting formal applications until Thursday night. Even then, it was for a select group of customers to test the system, according to a spokeswoman. She said the bank, which needed time to set up a digital application process, plans to include all customers over the weekend.
Bank of America, the state’s largest lender, was criticized at the outset on April 3 for limiting its PPP loans to checking customers with preexisting borrowing accounts with the bank, although it quickly included other customers that had no credit accounts with other banks. Citizens, the state’s No. 2 bank, began accepting loans earlier this week but was forced to pause its application submission process for about a day to address technical issues.
Eastern Bank began processing applications on Monday, and now has more than 8,000 in the queue. They add up to $1.3 billion in requests — more than 30 times a normal week.
Banks are typically prioritizing existing customers — out of loyalty, and to speed the process along. Joe Kriesberg, president of the Mass. Association of Community Development Corporations, worries that smaller businesses without banking relationships, particularly those owned by people who don’t speak English, will lose out.
Lenders have 10 days to close loans and issue funds after an SBA approval. For cash-strapped clients, that money can’t come soon enough. As of Friday, however, many local bankers said they still hadn’t moved any PPP money out the door.
There have been some successes. Liberty Bay Credit Union executives said they closed on their first PPP loan on Thursday: $107,000 to an accounting firm in Abington. And Barry Steinberg, president of the Direct Tire & Auto Service group based in Watertown, said he was assured by Leader Bank that his request would be fulfilled within several days, enabling him to bring 20 furloughed employees back to the shops.
But there is plenty of disappointment to go around. Take Daniel Spirer, owner of a temporarily shuttered jewelry shop in Cambridge. He found out Friday that he wouldn’t be eligible for the PPP, at least not yet. He also applied for a disaster loan, but now worries he won’t see a penny.
At Envision Bank in Stoughton, new chief executive Bill Parent moved quickly to ensure his institution could offer the paycheck loans — even though Envision does not typically make SBA loans. (His first PPP loan, $80,000 to a video production firm, went out on Friday.) Parent said banks need to be there for their small-business customers during this time of need, not just during the good times.
When will the good times return? That’s an obvious open question — as is the number of small businesses that will survive long enough to see them.