Politico, "Banks brace for new wave of small businesses at troubled loan program"

Summary

Politico article by Zachary Warmbrodt, dated 04/09/2020, reporting that banks warn a $350 billion small business rescue program could become more backed up Friday, when self-employed business owners become eligible to apply. It says banks have struggled with loan applications since the Paycheck Protection Program launched April 3, amid technical breakdowns and a lack of guidance from the Trump administration. Bank of the West Corporate President Cynthia Blankenship is quoted saying "We will be bombarded once again." Tioga State Bank President and CEO Robert Fisher is quoted describing a complete lack of detail for the next day. The article says OnDeck has loaned $13 billion to small businesses since 2007.

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Banks brace for new wave of small businesses at troubled loan program

Since the so-called Paycheck Protection Program launched April 3, banks have struggled to process a barrage of loan applications.

Banks have struggled to process a barrage of loan applications amid constant technical breakdowns and a lack of guidance from the Trump administration. | Justin Sullivan/Getty Images

By ZACHARY WARMBRODT

04/09/2020 05:35 PM EDT

Banks are warning that a beleaguered $350 billion small business rescue program could become even more backed up Friday when the nation's self-employed business owners will be eligible to apply for the government-backed loans.

Since the so-called Paycheck Protection Program launched April 3, banks have struggled to process a barrage of loan applications amid constant technical breakdowns and a lack of guidance from the Trump administration.

Initially, independent contractors and self-employed individuals were not able to apply. But that will change starting Friday — exposing the program to millions more potential applicants. Demand for the loans has been huge, with businesses enticed by terms that allow the loans to be forgiven if borrowers maintain their payroll.

"We will be bombarded once again," Bank of the West Corporate President Cynthia Blankenship said.

The uncertainty around the next phase of the Paycheck Protection Program is the latest fallout from the effort's rushed and rocky rollout. The Trump administration hurried its implementation last week as businesses clamored for a lifeline during the pandemic, even as banks said they weren't ready to participate.

Banks said Thursday they were still awaiting details from the Treasury Department and Small Business Administration about how to handle loans for the new group of businesses set to apply. Among the banks' big questions: how to account for payroll for business owners who are self-employed.

The new category of self-employed business people and independent contractors is vast and covers a wide range of industries — plumbers, electricians, accountants, artists and consultants, to name a handful.

"There is a complete lack of detail for tomorrow," Tioga State Bank President and CEO Robert Fisher said Thursday afternoon. "I am a little more than concerned right now, considering we are a half day away from that rolling out."

Bankers feared it would be a repeat of the program's April 3 launch. Banks scrambled to start accepting applications that day because the Trump administration had only published final guidelines for the loans the night before.

Bank representatives said a new influx of applicants would further burden the Small Business Administration system used for authorizing the loans. It has crashed and been unstable throughout the launch of the Paycheck Protection Program, according to bankers.

"That will clog the system even more," one banking industry source said.

Another new addition coming soon to the program will be nonbank lenders, including startup financial technology companies. Treasury late Wednesday released a long-awaited application for those companies to apply to offer loans.

Among the applicants is OnDeck, an online small business lending company that has loaned $13 billion to small businesses since 2007.

"We're eager to roll up our sleeves and get in there and help small businesses via this program," OnDeck spokesperson Jim Larkin said.

As the program neared the end of its first week, some small businesses that applied for the loans said they had begun to hear good news — they had been approved.

Steve and Libby Crider, who operate 2nd Shift Brewing In St. Louis, Mo., got word from their bank via text Thursday morning that they had been OK'd for a loan.

Business is down but Steve Crider said he now plans to find work for employees that he let go as the pandemic began. He'll also be able to pay his rent.

"We used to brew two to three batches every day," he said. "Now we're brewing one or two a week. I don't have a lot of work for these guys, but they're going to get paid. Maybe I'll bring them in and we'll do some cleaning."

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