The much-touted, $349-billion Paycheck Protection Program, passed last month as part of Congress’ Coronavirus Aid, Relief and Economic Security (CARES) Act, is off to a less than auspicious start.
The program, which allows small businesses to apply for up to $80,000 in low-interest loans to cover the cost of keeping workers on the payroll for 60 days, was supposed to kick off Friday. But the infrastructure needed to operate the system is not ready for prime time, according to bankers who are trying to implement the loans for their clients.
“There’s a lot of stress right now,” Community First Bank Vice President Larry Hensgens said. “There are pressures at every level, from the Treasury to the Small Business Administration to the banks and customers.”
Some of the issues are related to the fast rollout of the program. The CARES Act was passed on March 27. But guidance to banks, in the form of an “Interim Final Rule,” was not received until late Thursday, hours before the program was set to go live.
“There are still a lot of questions that are being raised,” Hensgens said.
The idea behind the loans was that a business owner could go to their bank, apply for the loan and receive a check immediately to keep the doors of their operations open and their staff employed as the COVID-19 pandemic brought most economic activity to a standstill. But that is not quite how it is working out.
Because the program is administered through the SBA, any bank making loans under the PPP must be an SBA approved institution, which eliminates many smaller organizations from consideration.
So if a business owner’s bank does not qualify for the program, they have to find another bank to handle their loan, which means bringing all of the business’ documents and financials to go through the loan process. It also means those businesses will likely be placed behind the bank’s established customers in having their loan processed.
Hensgens said Community First has applied for its SBA certification, but it is not in hand yet.
Additionally, the basic requirements for the application process are still in flux. Additional changes were made as late as Saturday.
“I think there are still more questions coming,” Hensgens said.
Another concern is that although the funding of the loans is coming from the SBA, the banks making the loans are currently responsible for administering them. That includes servicing on loans that may go bad or not be repaid when a business shuts its doors.
Many banks have so far chosen not to participate in the program. Others have restricted access to the low-interest loans to established customers.
Others have gone as far to limit their participation to customers with established track records and existing lines of credit.
Hensgens said that he thinks the bugs will be worked out, but could not say when.
“There will be more changes, I am sure,” he said.