Before the weekend was even out, Wells Fargo had announced that it had taken all the loan applications it intended to through the Paycheck Protection Program created in the $2 trillion coronavirus economic relief package, and was cutting off applications. The intent of the program is to provide loans for small businesses to keep their employees paid through the crisis. Wells Fargo said it had set a limit of $10 billion and had received applications to that threshold as of Sunday, cutting out many of its small business customers. Aside from Wells Fargo, banks and borrowers have been overwhelmed and confused by the program set up by the Small Business Administration (SBA). The rollout of the program has been as chaotic as banks warned it would be last week.
In response, Sens. Elizabeth Warren and Edward Markey have urged SBA Administrator Jovita Carranza and Treasury Secretary Steve Mnuchin to step up to rectify the fiasco and ensure small businesses get the help they need. "We urge you to move quickly to issue additional guidelines and clarifications to ensure that loans are disbursed quickly, that all businesses can participate and that lenders give mom and pop businesses the same access to loans that they give their more sophisticated small business clients. All small businesses need to have equal access to this help," the senators wrote.
Because the Trump administration hasn't provided adequate guidance, many banks haven't been able to prepare their systems to even start acceptation the applications, and community bankers in particular faced problems even getting into the SBA system to process the loans. Warren and Markey quote a letter from community bankers saying that two days into the launch of the program "hundreds of lenders are still trying to get approval to access the SBA system so they can process loans" and that both "existing SBA lenders and non-SBA lenders are experiencing massive delays and inability to process loans or even access the SBA to become an SBA lender." Small community banks, large national banks—all of them are struggling with the simple logistics of this, much less the lack of guidance in providing the loans.
The Federal Reserve announced Monday that it would enter the program to provide a backstop for banks, which don't want to end up filling their balance sheets with small business loans to the exclusion of other borrowers. The Fed says it could either lend directly to the banks to provide the cash influx they need or buy the loans once they're originated to get them off the banks’ books. It's critical relief to the banks to know they won't be left holding the bag here, but it doesn't do much about the immediate logistical and information problems small businesses and banks have.
The whole point of this provision of the relief package was to keep small businesses—and the people they employ—afloat through the crisis, making sure that critical part of the economy doesn't collapse. It's literally a lifeline, one that the Trump administration is proving incapable of creating. The program began on Friday, but banks didn't even have the basic information about how it was supposed to work until late Thursday.
