Small business loan program ran out of money within minutes, some banks say

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Much of the $ 350 billion the Small Business Administration’s Coronavirus Emergency Relief Fund was actually spoken about within the first few minutes of the launch, according to senior bank officials.

“We didn’t even get past the first five minutes of nominations,” said a senior bank executive at JPMorgan Chase.

The bank received more than 60,000 paycheck protection program applicants in that first five minutes, a senior Chase executive said. When the funds have dried up after less than two weeks, only 27,000 loans were ultimately approved, Chase said.

After reports revealed details of companies that had successfully secured emergency funding, small business owners across America were angry that they never made their way to the front row.

But according to some major lenders, there was no time for a line. The CEO of an independent bank said it was like “a rush through the eye of a needle.”

A senior Bank of America executive said that on the first day alone, the bank received more than 10,000 requests per hour. The bank only had “thousands” of those approved by the SBA, CEO Brian Moynihan said on an earnings call last week.

Separately, Wells Fargo said the SBA approved a total of 1,051 claims for $ 120 million. Over 170,000 “expressions of interest” were filed with the bank in the first two days.

The bank said strong demand exceeded penalty restrictions on its ability to lend that were imposed by federal regulators two years ago following a scandal of fake accounts. Wells Fargo’s participation in the SBA’s coronavirus loan program was initially capped at $ 10 billion, but on April 8, the Federal Reserve authorized temporary relief from those limits.

According to one estimate, more than $ 1.8 trillion could ultimately be needed to meet the needs of small business owners.

Overall, since the emergency fund was ‘first come, first served’, only small business owners who applied as early as possible were likely to be funded.

Other banks have also been hit by a wave of demands for the loosely defined program, intended to provide general relief funds to some 30 million U.S. small businesses with assurances from Treasury Secretary Steven Mnuchin that the money would be to their bank account within 24 hours.

“You get the money, you get it the same day, you use it to pay your workers. Please bring your workers back to work if you let them go ”, Mnuchin said at a press conference the afternoon before the start of the program, even as lenders waited for the latest guidance from the Treasury Department.

For the past two weeks, small business owners have checked their emails and called their bankers and the SBA to check on the status of their application, not knowing that the first phase of the program was over before it began. barely.

“It was Hunger Games,” a senior bank executive said.

Shawn O’Day, a retired disabled veteran, owns the O Bar in North Conway, New Hampshire. He believes he was one of the first to apply and ultimately submitted applications through four separate banks.

“Every few days after not hearing anything, I would go online and apply through another bank. After a week of that – as we all know, the news came back recently, all the money has dried up, ”he said.

“All I tried to do was support my nine unemployed, but to no avail,” he said. He also received a “friendly reminder on April 10 from my landlord that rent was due on April 1, which is still unpaid.” O’Day said.

Small business owners checked their emails and called their bank to check the status of their application, not knowing that the first phase of the program was over before it had barely started.

From the very beginning, the fund seemed insufficient to meet demand. If each of the small American businesses had applied, they would each have received approximately $ 12,000.

Yet, according to new data from Fivestars, a marketing and loyalty platform service for small businesses, 75% of small and medium businesses with current mandatory shutdowns that the company serves need an infusion of 55%. $ 000 by May 1 directives are lifted.

“Most of the small businesses on Main Street have very few leads. Of our merchants, we know that 75 percent have less than four weeks’ cash, said Chris Luo, Marketing Manager for Fivestars.

A estimated at $ 1.8 trillion may ultimately be needed to meet the needs of small business owners, Howard Mason, head of financial research at Renaissance Macro Research, said in a note to clients last week.

After Wells Fargo stopped receiving inquiries, Matt Fhuere, owner of a 14-person vintage car restoration shop in Salt Lake City, Utah, opened a new bank account. He waited several times with the SBA for more than three hours while he applied for several relief programs.

“I paid my accountant $ 500 to get ready, to just have to fill out their forms, finally get the approval, the same day the money ran out,” he said. .

“I built this business a dollar at a time,” he said. “Now I’m going to lose everything. State and government damaged me more than any virus. “

CORRECTION (April 19, 2020, 9:33 a.m.ET): An earlier version of this article misstated the amount of relief small business owners need, according to one estimate. The amount is $ 1.8 trillion, not $ 18 trillion.

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