(Bloomberg) — The Trump administration’s $349 billion small-business rescue kicked off Friday surrounded by concerns about its ability to handle an expected flood of applications and deliver enough aid to mom-and-pop firms hit hardest by the coronavirus pandemic.
Hours before the program started taking applications, lenders complained they lacked sufficient guidance from the Small Business Administration on how to process them. While new rules were issued late Thursday, it wasn’t clear how quickly lenders would be able to comply with them or how many would participate because of what some see as disadvantageous terms.
Advocates for lenders and small businesses also expressed concern on the eve of the program’s launch that distributing the money will take far longer than the same-day processing promised early on by the Trump administration. And with demand expected to far outstrip available funding, mom-and-pop shops will be at risk of losing out.
“There’s a sense of urgency that there’s not actually enough money in the loan fund for the number of people who actually are desperately in need of help right now,” said Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small businesses. “Business owners are sort of scrambling to make sure they can get a spot in line.”
The relief package for small businesses is a key piece in the $2 trillion stimulus package President Donald Trump signed on March 27 aimed at shoring up an economy that ground to a halt amid the coronavirus outbreak. The 30 million small businesses in the U.S. employ half of the private workforce and their collapse would have long-lasting effects across the country.
Almost a quarter of them have already shut down temporarily in response to the virus, and 11% are on the verge of closing for good within the next month, according to a poll released Friday by the U.S. Chamber of Commerce. By one estimate, small businesses may need more than $1 trillion to replace lost revenue over the next three months — about three times the current package.
U.S. Treasury Secretary Steven Mnuchin said at the White House’s daily coronavirus briefing Thursday night that Treasury and SBA officials including the agency’s new administrator Jovita Carranza have been working around the clock to flesh out the program guidelines with input from lenders.
“This is an unprecedented effort by this administration to support small businesses, and we know that there will be challenges in the process,” Carranza said.
Mnuchin announced at the briefing that the SBA would bump up to 1% the interest rate lenders may charge small businesses under the relief program after lenders complained that the previous rate of 0.5% was below their own cost of funds.
In addition to drawing consternation from lenders and small business owners, the rollout is coming under fire from Republican Senators Josh Hawley of Missouri and Ted Cruz of Texas for what they said were restrictions on churches and religious non-profits.
The relief package, called the Paycheck Protection Program, allows small businesses to apply for loans of as much as $10 million, with payments deferred for six months. The loans, which are guaranteed by federal government and don’t require collateral, will be forgiven if funds are used for payroll costs, mortgage interest, rent and utility payments for two months and if businesses retain and rehire employees.
But lenders were still waiting for guidance — which only arrived Thursday night — on what documentation they needed from borrowers and other guidelines to process the loans, said Julie Huston, chief executive of lender Immito LLC in Denver and chairwoman of The National Association of Government Guaranteed Lenders, a trade association of banks and finance companies that make SBA loans.
The banks will need time to review and implement the guidance and it isn’t clear whether enough lenders will sign on to the program to fill the need, Huston said.
“How crazy is this?” said Robyn Schultz, who operates Quality Electric, a commercial light industrial electrical company based in Birmingham, Alabama, that her husband’s family has run for more than 50 years.
“The government is issuing dates for people to apply, but the SBA doesn’t even have the guidelines,” said Schultz, who’d called her bank only to be told they needed more information and the local SBA office wasn’t able to help. “They can’t even tell you what you need to bring in to file the application.”
Governments the world over are taking steps to shield small businesses. Those countries with a tradition of state-aid, such as those in Europe, have proved most successful so far in rolling out initiatives.
In Germany, for instance, companies facing liquidity squeezes or whose income or capital have been eroded can ask for help from a state-run bank. In France, as of Thursday, 40,000 companies are benefiting from governments guarantees and have sought 7 billion euros ($7.6 billion) of loans.
A senior administration official, speaking on condition of anonymity, told reporters on Tuesday there could be millions of applications when the U.S. program goes live Friday. Individual restaurants and hotels that are part of large, multinational chains or owned by private-equity firms also will be able to take advantage of the program, which could squeeze out small businesses.
Borrowers must submit a two-page application with approved lenders, who will register the loans with the SBA, verify eligibility and disburse funds on a first-come, first-served basis. Small businesses with fewer than 500 employees can apply starting Friday, and independent contractors and the self-employed start April 10.
“That doesn’t mean everybody is going to get their loan tomorrow, but the system will be up and running,” Mnuchin said at the White House briefing Thursday. He said he’ll ask Congress for more funding if the money runs out.
Huston of the National Association of Government Guaranteed Lenders estimated demand could be three times the available funds.
Small businesses that have worked with the SBA in the past or have a disaster relief loan will have a “leg up” on other small businesses because they will have a track record with SBA preferred lenders, said Brian Crawford, executive vice president of government affairs for the American Hotel and Lodging Association.
Due to the volume of applications likely to be processed, Frost Bank is making the loans available to existing business customers only, said Bill Day, senior vice president and communications chief.
The size of the stimulus package is unprecedented for the SBA, which is on its third administrator under Trump and is already showing signs of strain in carrying out the task. In the past weeks, so many people tried to access an existing Economic Injury Disaster Loan program that SBA’s website failed repeatedly, Bill Koontz, an SBA spokesman in California, said late last week.
Furthermore, Carranza, a former top adviser to Mnuchin, has been in the job for barely three months. The agency is seeking to boost employees and the White House is dispatching staff to help, according to people familiar with the matter.
“I’m very concerned that the systems that are perfectly adequate for normal operations just won’t be able to handle this,” said Karen Mills, a former SBA administrator.
(Updates with poll in sixth paragraph.)
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