Wells Fargo, Other Lenders Miss Debut of Rescue for Small Firms
Rescue Fund for Small Firms Starts Without Wells Fargo, JPMorgan
(Bloomberg) --
Small businesses had mixed results Friday trying to apply for loans on the first day of an unprecedented and quickly arranged federal relief program, with some banks including Wells Fargo & Co. saying they weren’t ready as lenders across the country grappled with a lack of detailed guidelines from the government.
JPMorgan Chase & Co. started taking applications Friday afternoon after warning clients Thursday night it was still awaiting guidance and might not be ready the following day. Bank of America Corp. initially took applications only from its existing small-business borrowers but later said it would broaden its lending after the practice sparked criticism.
Friday was the first day that American small businesses hit by the fallout from the coronavirus pandemic could start applying for loans under a $349 billion program included in a $2 trillion stimulus package passed last month aimed at shoring up an economy.
U.S. Treasury Secretary Steven Mnuchin said more than 800 lenders, mostly community banks, participated on Friday and that he expects all big banks will be accepting applications starting next week. He promised that if the fund runs out of money, he’ll ask Congress for more.
“I know there’s a lot of hard-working small businesses that couldn’t get their applications processed this week,” Mnuchin said on Fox Business. “They shouldn’t worry about it.”
There have been at least 17,503 loans valued at more than $5.4 billion, U.S. Small Business Administration Administrator Jovita Carranza tweeted on Friday night.
The roll-out has been plagued by uncertainty, partly because of its magnitude and the urgency to get money to financially distressed small business owners before they’re forced to shut down permanently. After the government announced that the program would launch Friday with potentially millions of applications that could be processed quickly -- even the same day -- lenders said they lacked enough guidance.
First applicants reported widely different experiences. Some got error messages when trying to apply online, another has been trying since 4 a.m. in the morning, in vain, while two Bank of America small-business clients said they got through quickly and smoothly.
‘Unacceptable’ Delays
The National Federation of Independent Business, the largest group representing small businesses in the country, said it was hearing from too many firms that were being shut out of the program and called on lenders and the government to change that immediately.
“These small businesses did their due diligence and were ready this morning, but are hearing ‘no,”’ NFIB President Brad Close said in a statement. “The current delays are unacceptable, and hurt those that need the help most – very small businesses that find themselves in the worst of financial circumstances.”
Wells Fargo was not accepting applications as of Friday afternoon, according to its website. The bank is working “as quickly as possible to be ready to assist small business customers,” spokesperson Kate Pulley said via email.
Huntington Bancshares Inc. Chief Executive Steve Steinour said in an interview early Friday afternoon that the lender would be taking applications “momentarily” and expects they’ll “be going seven days a week from now until June 30.”
The Columbus, Ohio-based firm has assigned more than twice its normal SBA staffing levels to work on the program, and Steinour said he’s expecting thousands of applications. Money should start going out to small businesses early next week, he said.
Lenders “have to make sure we’re fully complying with the guidelines,” Steinour said. “By the end of next week, we’ll be hitting a really productive stride,” he said.
The nation’s credit unions early Friday were still seeking guidance on how they can participate. The National Association of Federally-Insured Credit Unions had yet to hear of any of its members having extended one of the SBA loans through 12:30 p.m., said Carrie Hunt, executive vice president of government affairs.
Some smaller banks also said they’re weren’t ready until they got more guidance about processing the loans from Treasury and the SBA, the agency in charge of the program. Fountainhead Commercial Capital, a national, non-bank lender that specializes in SBA loans, won’t be participating on Friday because the guidance so far is still “insufficient to most in the lending community,” said Chris Hurn, founder and chief executive.
“We truly hope that SBA will provide the necessary guidance we need very shortly, so we can begin processing loan applications, perhaps in a matter of hours thereafter,” Hurn said in a statement.
The initiative, called the Paycheck Protection Program, is meant to help small businesses keep workers on payrolls by offering loans of as much as $10 million with the portion used for payroll costs, mortgage interest, rent and utility payments for two months forgivable if firms retain and rehire employees. The number of Americans applying for unemployment benefits surged on Thursday and reached about 10 million over the last two weeks.
Wahid Nassar, who runs a restaurant in the Highlands, New Jersey, said he tried going online Friday morning to apply for the loan through his lender, Bank of America, but repeatedly got error messages. “There’s so much confusion and hard to get a straight answer from anyone right now,” he said.
But Joseph Colangelo, the chief executive officer of Boxcar Inc., a Chatham, New Jersey-based startup whose app offers parking and bus service, had better luck. He said he found the application online, and since he was already logged into the Bank of America website, it took him only 10 minutes to complete. The site said the bank would be in touch with him if it needed further information, he said.
“It was so slick,” Colangelo said. “I was very impressed.”
At International Quality Consultants Inc. in Butler, Pennsylvania, Chief Executive Officer Gail Paserba was anxiously waiting to submit an application for a loan after seeing about half the company’s business stall. As of midday Friday, its financial institution, PNC Financial Services Group Inc., needed to send an email to continue the process, she said.
Paserba said the company, which does inspections and audits for heavy industry, has been reducing hours for some its 67 employees the past two weeks but decided to pay them the full amount in anticipation of receiving federal assistance. While she’s worried about the loan being delayed, she said she’s gotten good guidance from financial institutions and business groups.
“As crazy as it has been, the information has been consistent,” Paserba said. “I have a headache; it’s not a migraine.”
Earlier in the week, there were doubts about how many lenders would participate because they originally believed they would be able to charge interest of as much as 4% and were dismayed when the government set the rate at 0.5% -- a rate below many banks’ own costs of funds, said Julie Huston, chief executive of Immito LLC, an SBA lender backed by a nonprofit community development group. By Thursday, Mnuchin announced the government had bumped up the allowable interest rate to 1%.
While banks can tap into the Federal Reserve’s “discount window” at 0.25%, many lenders don’t access the Fed money because of conditions on its use. Often, the next lowest-cost source of funds is the Federal Home Loan Bank at about 0.75%, said Huston, also chairwoman of the National Association of Government Guaranteed Lenders.
Some of the largest financial institutions have the financial might to issue loans to keep their customers afloat, potentially even taking a loss to do so, but “what happens to everyone else?” Huston said Thursday ahead of the change in interest rates.
Advocates for small businesses have also said the $349 billion won’t be nearly enough to meet demand, and that many firms -- especially mom-and-pop shops that don’t have an established relationship with a lender -- could get beaten out for funding. Some lenders have said they’ll only take applications from existing clients.
Live Oak Banking Co., ranked by SBA as its most active lender, has been gathering payroll information from its 4,000 existing customers and processed its first loan at 4 a.m. on Friday, President Huntley Garriott said in an interview. The bank plans focus on its existing customers first “and we will address the rest of the world second,” Chief Executive Chip Mahan said in the interview.
By one estimate, small businesses may need more than $1 trillion to replace lost revenue over the next three months, and some lenders believe as much as triple the funds in the loan program will be needed to meet demand.
Besides Mnuchin saying he’ll ask Congress for more funding if necessary, the U.S. Chamber of Commerce has been discussing that concern with both Republican and Democratic members of Congress, who are aware of the issue and would address it, said Neil Bradley, the group’s chief policy officer.
“No one wants anyone to go out of -- a small business to go out of business because they were the next person in line when we reached the $350 billion,” Bradley said in a conference call with reporters.
©2020 Bloomberg L.P.