Despite struggles with systems and guidance in the first 10 days of the Paycheck Protection Program’s (PPP) launch, it appears that the $349 billion earmarked for the program by Congress won’t be even close to enough to meet demand.
As Tuesday dawned, the Small Business Administration (SBA) had granted delegated authority to disperse funding to 1.01 million loans for $242 billion, issued by 4,662 lenders across the country.
That’s 69 percent of the $349 billion appropriated by the CARES Act. SBA updated information as of noon Wednesday to say that $296 billion, or 85 percent of the fund, had been approved to more than 1.3 million loans.
Yet what had expected to be quick approval from Congress on an additional $250 billion to PPP, asked for the previous week by Treasury Secretary Steven Mnuchin, seemed further away.
Competing proposals from Democrats and Republicans in the Senate were blocked last week, and the Senate took no action in a pro forma session Monday. That means the soonest a new bill could be introduced would be Thursday in the Senate, with the House set for its own shortened session Friday.
The finger-pointing began last week in a joint statement issued by Senate Majority Leader Mitch McConnell (R-Ky.) and House Minority Leader Kevin McCarthy (R-Calif.).
“Republicans did not ask to change any policy details that were negotiated by both parties and passed unanimously. All we want to do is put more money into a popular job-saving policy which both parties designed together,” they said in the statement. “We will continue to seek a clean PPP funding increase. We hope our Democratic colleagues familiarize themselves with the facts and the data before the program runs dry.”
House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) answered the criticism in their own joint statement Monday.
“Small businesses, hospitals, frontline workers and state and local governments across the country are struggling to keep up with this national crisis. They need more help from the federal government and they need it fast – our nurses, doctors and health care workers need it as much as anyone else,” the pair stated. “Further changes must also be made to the SBA’s assistance initiative, as many eligible small businesses continue to be excluded from the Paycheck Protection Program by big banks with significant lending capacity. Funding for COVID-19 SBA disaster loans and grants must be significantly increased to satisfy the hundreds of billions in oversubscribed demand.
“We have real problems facing this country, and it’s time for the Republicans to quit the political posturing by proposing bills they know will not pass either chamber and get serious and work with us towards a solution.”
As the fund dwindles each day – it’s possible that the $349 billion could be depleted before the Senate gavels in its pro forma session at 3 p.m. Thursday – industry representatives have stepped up calls for congressional action.
“The Paycheck Protection Program has been incredibly popular with millions of small businesses submitting applications. The banking industry has mobilized quickly and worked tirelessly to implement a new $349 billion program based on limited information in less than a week,” Consumer Bankers Association President and CEO Richard Hunt said in a statement. “While getting these loans approved is a top priority, funds are already running low as applications continue to pour into banks. It is critical Congress work in a bipartisan manner with the administration to quickly authorize additional funding.”
The National Association of Realtors (NAR) wrote to congressional leaders Monday to put their voice behind quick action.
“High demand for these programs has strained the SBA and its lenders, raising legitimate concerns that necessary funding will quickly become depleted,” NAR wrote. “In addition, many SBA lenders are turning away PPP applicants without existing business accounts. This has left countless businesses and independent contractors unable to access funding, which within one week of opening was already nearly one-third committed.
“We strongly urge you to provide additional funding for the PPP and EIDL programs in future COVID-19 response legislation, ensuring the need for these loans is met as this crisis continues. In addition, Congress should clarify implementation to resolve issues with added limits and requirements that are not in accord with legislative intent.”
On the ground, the Treasury Department has continued to add to its FAQs on its website concerning PPP. Although loan authorization documentation – which lenders have been waiting for since the program’s launch, detailing the terms of the deal between SBA and the lender – still has not been released, the FAQ says it is not necessary.
“A lender does not need a separate SBA authorization for SBA to guarantee a PPP loan,” the FAQ states. “However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan. Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rule and guidance, and SBA Form 2484.”
Whether that satisfies risk-averse lenders, though, isn’t clear. What Treasury has done is say the lender doesn’t need a deal with SBA for SBA to approve loans. Is that a safe harbor, meaning SBA will guarantee anything the lender funds? Probably not, but it could be interpreted as one.
Another updated FAQ question asks whether lenders are required to collect information on every owner with a 20 percent or greater stake in the business to satisfy Bank Secrecy Act requirements. Although Treasury appears to offer flexibility, it ends scenarios for current and new customers with the phrase, “unless otherwise indicated by the lender’s risk-based approach to Bank Secrecy Act compliance.”
Thus, if regulators later look into the handling of the PPP loan and the lender followed the FAQ guidance, but the regulator still believed the lender should have been more aware because of its interpretation of the lenders “risk-based approach” to BSA, the lender could remain on the hook for BSA violations.
Reports of long delays with the SBA technology platforms continued at the start of the week, while some lenders reported application work so overwhelming that they committed nearly half their workforce to processing. In one case, a bank reportedly had 6,000 employees solely assigned to processing.