But JPMorgan Chase, the country’s largest lender, said Thursday it did not expect to begin accepting applications for the program Friday, as scheduled. Other banks said they were accepting applications but didn’t expect to process or approve them until after the Treasury Department and Small Business Administration finalize rules for the program.
Some banking officials have warned that the abbreviated review process ― which allows borrowers to attest to their own eligibility without the government’s approval ― will make the program a magnet for fraud. Although the SBA will be able to audit lenders and borrowers later, it will fall primarily to private bankers to make decisions about who should receive taxpayer-backed loans.
The Paycheck Protection Program directs $349 billion toward a new category of federal loans. The terms of the loan are designed to be especially favorable to borrowers, with ultralow interest rates, no payments for the first six months and the opportunity to have the loan completely forgiven if employees can be kept on payroll throughout the crisis. And the loans will apply to a broad swath of the U.S. business community, including an array of businesses, sole proprietors and independent contractors.
“This is an unprecedented expansion of SBA lending that will take some time before it’s fully functioning,” said Rob Nichols, president of the American Bankers Association.
Goldman Sachs, the storied Wall Street bank, is not planning to directly participate in the new SBA program but announced Thursday it is setting aside $300 million for small-business lending in response to the pandemic and will lend $25 million to smaller banks participating in the SBA program.
“Our hope is that with immediate cash loans and the necessary stimulus to lending institutions, we can help provide the time these businesses need to weather this crisis,” David M. Solomon, chief executive of Goldman Sachs, said in a statement.
In a mark of the frenetic pace with which federal agencies are trying to get money out the door, final regulations for the program were not released until Thursday evening, less than 24 hours before the program is expected to begin.
Bankers reviewing the regulations for the first time Thursday evening wondered how they could be expected to disburse funds the next day.
“Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them,” Richard Hunt, president and CEO of the Consumer Bankers Association, said in a statement.
Late Thursday evening, Cynthia Blankenship, corporate president of Bank of the West, said she was frantically reviewing the new rules.
The Grapevine, a Texas-based bank that has been an SBA lender since the 1980s, already has several applications from some of its existing customers and also received referrals from other banks still leery of the program, she said.
“This is all coming at us so fast and we’re just trying to keep up,” Blankenship said. “It’s been like drinking from a firehouse.”
Meanwhile, small-business owners say they are in limbo and can’t make critical decisions until the program is operational. Some worry that the $349 billion fund — which officials say is first come, first served — is not enough and that they might not get approved in time to claim their share.
“I think they are going to run out of money really fast, and people are going to have to wait in line” for Congress to approve more money, said Jenn Berman, chief executive of MZQ Consulting, a company helping small businesses with their loan applications.
SBA and Treasury officials emphasize that their first priority is to get cash in the hands of struggling small businesses and avoid the normal seven-day review process.
“There really has never been a product like this in our history, with not only the streamlined nature but the fact that there is very little underwriting required in terms of personal guarantees, no collateral, no requirement for credit elsewhere,” said Steve Bulger, an East Coast regional SBA administrator. “We are going to move forward as fast as we can because we know the need right now is to get the money out there.”
Banking industry officials have warned they could quickly become overwhelmed by millions of applications and have told the Treasury Department they are particularly concerned about how much they will be expected to vet applicants.
“Just the scale of requests is going to cause the system to break down. … Just the fundamental infrastructure of some of [the banks’] Web portals won’t be able to handle it,” said Hicham Oudghiri, chief executive of Enigma Technologies, a small-business-focused data analytics and fraud detection company.
Without clear guidance from the Treasury Department, industry officials worry they could be held responsible if small businesses defraud the program or close their doors, they have said.
The program is more complex than it seems and may pose too much risk for some banks, industry officials say. If the money is considered a grant rather than a loan, for example, then a bank may be willing to take more risks on what kinds of small businesses are approved, they said.
“Lenders are just digesting program guidance the night before the program is set to launch, and while banks want to be as helpful as possible right now, it may be a few days before lenders can get comfortable with the rules of engagement,” said Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, a trade group for lenders that originate SBA loans.
The government is guaranteeing 100 percent of the loan’s value, meaning banks are repaid by taxpayers if the business fails to repay the loan. But community banks are also concerned about the low interest rate, which was increased from 0.5 percent to 1 percent following complaints from banking associations. The law allows for a maximum interest rate of 4 percent.
Brock Blake, chief executive of the Salt Lake City-based financial technology company Lendio, said he has seen conflicting information from the Treasury Department and the Small Business Administration about basic issues, including which forms lenders should submit for approval.
He said he views the small-business loan effort as a troubled but necessary endeavor.
“It will be a disaster out of the gates, but at some point we will plug the holes, fix the problems and overcome all of these miscommunications because we have to,” Blake said. “Every day that we don’t, someone is going out of business or laying people off.”