WASHINGTON (Reuters) - U.S. banks were girding on Monday for another chaotic dash to grab $310 billion in fresh small business aid due to be released by the government on Monday, after it changed some of the rules of the first-come-first-served scheme at the 11th hour.
With the nation’s lenders already sitting on hundreds of thousands of backlogged applications, the fresh funds are expected to be burnt through in days - leaving swathes of mom-and-pop enterprises out in the cold again, banking groups said.
“Everyone pretty much has applications ready to go. It should be a week or so before the money is eaten through,” said Paul Merski, an executive vice president at the Independent Community Bankers of America.
He added it would be “very challenging” for anyone who has not already applied for a loan to successfully do so this week.
Created as part of a $2.3 trillion congressional economic relief package, the program kicked off on April 3 with an initial $349 billion in funding which was quickly exhausted in less than two weeks. The program allows small businesses hurt by the coronavirus to apply for government-guaranteed loans with participating banks. Those loans will be forgiven if they are used to cover payroll costs, subject to some conditions.
Given the pent-up demand, banking groups said they were worried that the flood of new applications would strain the SBA’s loan processing system which ground to a halt several times during the first round, bankers said at the time.
“Everybody is going to go through the same one-inch pipeline,” said Richard Hunt, chief executive of the Consumer Bankers Association. “It’ll be every bank for themselves.”
On Sunday, the SBA said it would try to mitigate that problem by announcing that banks could submit a minimum of 15,000 applications in a one-off bulk file, leaving smaller lenders left to battle with the SBA’s clunky online portal.
That could also create a dilemma for some banks as to whether to start processing their backlog on Monday, or wait for more applications so they can submit a one-time bulk submission.
Amid the rush to get funds out the door, the first round of the program was hobbled by technology and paperwork issues. It has also come under scrutiny after banks channeled some of the money to their larger, more profitable clients, including hedge funds and public companies.
The SBA and the U.S. Treasury appeared to try to address those worries on Sunday by imposing a $60 billion cap on the amount of funds a lender can process under the scheme, although few if any banks are likely to hit that high ceiling.
“The banks have been less than helpful in all this,” said Brian Rindos of Maryland after care provider Kids Adventures, who tried more than nine lenders after several turned him away or ignored him altogether. On Friday, he said he received tentative approval.
“Let’s say I’m cautiously optimistic...this time.”