Several hurdles have hampered some small businesses furiously attempting to apply for Payroll Protection Plan loans, which first became available on April 3, 2020. As previously reported, President Trump signed the PPP loan program into law on March 27, 2020 when he green-lighted Congress’ unprecedented $2.2 trillion CARES Act. The goal of this and other parts of the bipartisan CARES Act is to stabilize the U.S. economy in the face of unemployment claims skyrocketing to levels not seen since the Great Depression. To do this, Congress and the President wanted the money in the hands of small employers right away … before more employees, sole proprietors and independent contractors lost their jobs. In some instances, this happened. In many others, it hasn’t. What happened?

[For a more detailed explanation of the PPP loan program, who is eligible, how to apply and how it works, see Does My Business Qualify for an Immediate Loan Under the New CARES Act?]

Roadblocks to Implementation

The PPP loan program is an aggressive, never before tried stimulus measure. Nonetheless, given the shutdown of much of the economy and spiraling unemployment, Congress gave the U.S. Small Business Administration (“SBA”) just 15 days to come up with regulations to “fill in the details.”  Pressured by the Administration to move even faster, the SBA rolled out its first set of guidelines in just four days. As one might imagine, those guidelines were almost immediately questioned, particularly by the hundreds of current SBA-approved banks and credit unions expected to accept and process the PPP loan applications. Hence, two days later the SBA issued revised guidelines and what it called a “Final” application form on its Assistance for Small Businesses website.

For some banks – e.g., Bank of America – this was enough. They answered the call and started taking applications on April 3. For others – e.g., Chase and Wells Fargo – not so much. Wells Fargo, for its part, briefly started taking applications this past Sunday (while most of its customers did not know this was happening), only to stop taking applications Monday.

In short, as of the writing of this advisory only certain SBA-approved banks and credit unions are taking applications. Those moving forward are backlogged, as millions of small businesses are applying. This “race to the bank” is understandable, given the SBA’s website now ominously warns:

How long will this program last? Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

Some banks report they are receiving thousands of applications each and every hour. 

To add to the backlog and confusion, most banks and credit unions have announced they will only take applications from existing customers. Presumably, this is because they are still bound by “know your customer” rules requiring them to ensure loan recipients are not money launderers or otherwise involved in illegal activities. Of the participating “big” banks, only U.S. Bank appears to be taking applications from non-customers, although U.S. Bank is reportedly prioritizing existing account holders. Some banks and credit unions will only take applications from businesses with fewer than 50 employees, even though the PPP loan program applies to all “small business concerns” with (typically, but not strictly) up to 500 employees. Others have already reached capacity and are no longer accepting applications, even from existing customers.

Finally, the SBA guidelines released late last week say independent contractors and self-employed individuals cannot begin to apply until April 10, 2020.

How Long Will the Money Last?

At the rate businesses are now applying, the $350 billion initially set aside by Congress for the PPP loan program is likely to be exhausted within weeks, even though the stated deadline to apply is June 30, 2020. As of April 7—just four days after the program officially launched—178,000 loans for a total of $50 billion funded, depleting nearly 15% of the initial $350 billion allotment. While some loans have been quickly processed, it is unclear how soon lenders, guided by the SBA, will be able to process the reams of other applications, nor is it clear when all the funds—even if a majority of the applications are approved—will actually be dispersed. Most lenders are only accepting online applications, and many stress applicants should not call or visit local branches for information about the PPP loan program. 

Help—in the form of more funding—may however be on the way.  As of April 7, Treasury Secretary Steve Mnuchin was working with members of Congress to authorize another $250 billion to buttress the program.  The passage of additional funding legislation would likely mean lenders already at capacity could accept more applications. It could also mean new lenders might be approved to make SBA loans for the first time, thus reducing the number of businesses who now find themselves without a participating banking partner. 

Possible Solutions

According to the “letter of the law,” small businesses can apply for a PPP loan through any participating SBA 7(a) lender, federally insured depository institution, federally insured credit union or Farm Credit System institution. The operative word is “participating.” If additional funding is quickly authorized, the SBA should have an opportunity to approve additional lenders to take applications before the money runs out. (The SBA’s website optimistically says, “Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.) The more lenders available to take applications, the greater the number of applications processed quickly; correspondingly, the less demand on existing lenders’ limited resources.

In addition, on April 6 the Federal Reserve agreed to shore up the PPP program by buying approved and funded PPP loans, thus creating an incentive for banks to engage in more lending. By quickly purchasing the loans, the Fed frees up more cash for banks and credit unions to lend.  (Otherwise, “liquidity” rules require lenders to maintain cash reserves, over and above amounts lent, tied to the amount of the total amount of the outstanding loans on their books.)

Thus, for businesses who have been stymied thus far, either due to their own bank’s slowness or imposition of additional restrictions on PPP lending, the lending landscape may favorably shift soon.  If Congress pumps another $250 billion into the program as the Administration asks, there also should be money “left in the kitty” to cover delayed applications.    

What to Do Now?

For COVID-19 “impacted” small businesses who can, they should immediately apply for a PPP loan through their current banking partner. Where, for whatever reason, this is not an available option, they should check the SBA’s website for a list of nearby alternative lenders.

Small businesses in dire, immediate need of operating cash might also consider applying for an SBA Economic Injury Disaster loan. Information comparing a PPP loan with an SBA “Disaster” loan is available on ECG’s website, along with a great deal of other information for businesses looking to survive the COVID-19 shut down. You can also find the SBA’s online “streamlined” application for a Disaster loans at https://covid19relief.sba.gov/#/.

Here is a list of ten of our Nation’s largest banks and their current PPP loan protocols.  This information was verified to be accurate as of April 7, 2020.

JPMorgan Chase

  • Minimum criteria
    • Have an existing Chase Business checking account that’s been active since February 15, 2020.
    • Must be authorized to borrow on behalf of the business.
    • Must not have already received a PPP loan from Chase and haven’t applied for one from another financial institution.

Bank of America

  • Minimum criteria
    • Must have had an existing Bank of America business deposit and business credit relationship with Bank of America active as of February 15, 2020; or
    • Must have a business deposit relationship with Bank of America and not have a business credit or borrowing relationship with another bank.
  • Find more information and apply here: https://www.bofaml.com/en-us/content/cares-act-sba-lending-program.html

Wells Fargo

  • Currently not accepting additional requests for a PPP loan.
  • More info here: https://update.wf.com/coronavirus/paycheckprotectionprogram/

Citibank

U.S. Bank

  • Minimum criteria
    • Must be a single-owner business, which includes sole proprietorships, S-Corps, LLCs, and non-profits, but excludes independent contractors with only 1099 income at the moment.  U.S. Bank expects to expand to all types of eligible businesses, including independent contractors, multi-owner businesses and non-profits soon.
    • Non-U.S. Bank customers may apply, though U.S. Bank encourages applicants to apply through a bank where they already do business.
    • Must have completed U.S. Bank’s online inquiry form in order to receive an invitation to apply.
  • Additional information and apply here: https://www.usbank.com/business-banking/business-lending/sba-loans/paycheck-protection-program.html

PNC Bank

  • Minimum criteria
    • Must have an existing business deposit or lending relationship with PNC.
    • Business Banking clients (annual revenue is less than $5 Million) must also be enrolled in Online Banking in order to apply. Applications are submitted online.
    • Commercial, Corporate and Institutional clients (annual revenue is greater than $5 Million) should fill out the online contact form.  A PNC representative will then contact the applicant with next steps.
  • Additional information and apply here: https://www.pnc.com/en/customer-service/paycheck-protection-program.html

Capital One

TD Bank

SunTrust Bank (also BB&T or Truist)

Citizens Bank

  • Not accepting applications at this time, but plans to do so.
  • Citizens Bank business customers, with a loan or deposit relationship with the bank, may go to the bank’s website and enter their contact information.  When the application is ready, the bank will contact these potential applicants.
  • More information is here: https://www.citizensbank.com/small-business/paycheck-protection-program.aspx

Author: T. Jack Morse, Attorney, Enterprise Counsel Group