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The U.S. government’s $ 788 billion relief effort for small businesses ravaged by the coronavirus pandemic, the Paycheck Protection Program, ends as it began, with the initiative’s final days mired in chaos and turmoil. confusion.
Millions of applicants seek money from the handful of lenders who still provide government guaranteed loans. Hundreds of thousands of people are stuck in limbo, waiting to see if their approved loans – some of which have been on hold for months due to errors or problems – will be funded. Lenders are overwhelmed and borrowers are panicking.
“Some of our lenders have received death threats,” said Toby Scammell, managing director of Womply, a loan facilitator that has nearly 1.6 million applications pending for funding. “There are a lot of angry and scared people who really relied on this program and are afraid of being left out.”
More funding seems unlikely. Congress twice extended the program in December and March, totaling nearly $ 300 billion in new aid, but there is no indication it will do so again.
The relief program was to continue to accept requests until May 31. But two weeks ago, its director, the Small Business Administration, announced that the program’s $ 292 billion forgiveness loan program funding this year was nearly exhausted and would stop immediately. process most new requests.
Lenders suspected funds were low, but – breaking with its practice last year – the SBA had not given them updates on the remaining amount. As a result, the lenders had no warning that the end was imminent.
Then the government launched another curve: the SBA decided that the remaining money, about $ 9 billion, would only be available through community financial institutions, a small group of specially designated institutions that focus on underserved communities.
These organizations specialize in accessing women-owned and minority-owned businesses, a priority for the Biden administration. But they’re not meant to operate on a large scale – and suddenly thousands of desperate borrowers are knocking on their doors.
“I get an average of 150 calls a day,” said Brooke Mirenda, managing director of the Sunshine State Economic Development Corporation, a Florida lender. “When you talk to borrowers who are crying because there’s $ 8,000 at stake and for them it’s months of mortgage payment – that’s a really big deal.”
In something akin to a game of musical chairs, banks and other lenders are now desperately trying to find community-based financial institutions to take care of their backlog of applications. Even though most focus on underserved borrowers, they can process loans for any qualified applicant – but very few have the capacity to do so in large numbers.
“We’re trying to push an ocean through a straw,” Scammell said.
Womply has worked with four qualified community lenders, but none can handle claims nationwide or in large numbers. Community lenders typically work in a particular geographic area, and their focus is on helping vulnerable borrowers who typically need more practical help than banks are willing to provide.
The Small Business Administration website asks those still looking for loans to contact community financial institutions to determine which ones lend, but those who have tried said the effort was often unsuccessful.
Sheri, a Brooklyn photographer who asked that her last name not be used to protect her privacy, wrote to more than a dozen lenders. Three responded. One did not offer PPP loans, one said she did not follow her qualification rules, and the other asked for more information and did not confirm whether or not she could offer him a loan. .
SBA representatives did not respond directly to questions about the challenges of finding a willing lender.
“Community financial lenders play a key role in generating economic growth and opportunity in some of our most struggling communities,” said Patrick Kelley, head of the SBA’s Access to Capital Office, in a written press release.
“In just over seven days, over 450 IFCs processed over 273,000 Paycheck Protection Program requests for a total of $ 4.6 billion, or more than 50% of the remaining $ 9 billion. a week ago, ”he added.
The Paycheque Protection Program has had a tough road since its inception. Its debut, in April 2020, was plagued by technological glitches and confusing rules. The big banks have pushed back many borrowers and some have given priority to bigger and richer companies.
Fraud has also been a constant challenge, and the Justice Department has accused hundreds of people of illegally taking loans. Many of the smaller businesses have been closed entirely; a late move by the Biden administration to get more money for solo business owners has wreaked havoc on lenders and contributed to the recent flood of demands.
Another bottleneck is causing the turmoil: Banks and other consumer lenders rush to finalize hundreds of thousands of claims that were still pending when the Small Business Administration shut down the program to new ones. applications. These loans could still be funded, the agency told them, but they should act quickly.
It sparked panic, with distraught applicants besieging overwhelmed lenders – especially the so-called fintechs, a group of online lenders who have been making PPP loans at a breakneck pace. Many have taken on more clients than they can handle and are now struggling to deal with angry borrowers clamoring for help and information.
George Greenfield, owner of CreativeWell, a small literary agency and speakers’ bureau in Montclair, New Jersey, applied for a loan in March from Biz2Credit, a fintech lender.
But Greenfield’s claim was complicated – he’s a sole proprietor, but before the pandemic had part-time employees – and Biz2Credit’s system struggled to accurately calculate its loan amount. The initial amount offered to him was less than a quarter of what he was entitled to.
Greenfield and his accountant spent over a month trying to correct the mistake, without success. The emails went unanswered. The online customer service agents could not help you. And when the SBA cut off new loans, his problem became urgent: If he abandoned his application for Biz2Credit, he feared he could not find a new lender.
“My blood is boiling,” Greenfield said last week of his stuck app. “This company has no respect for the small business owners it has said it wants to serve.”
After a New York Times reporter contacted Biz2Credit, a company agent quickly called Greenfield and disentangled his candidacy. Within hours, he had the paperwork to finalize his loan for the correct amount. He was happy with the result but exasperated by the process.
Rohit Arora, CEO of Biz2Credit, admitted that Greenfield was not alone in his frustration.
“We were caught off guard by the closure of the SBA,” he said. “They are running a very chaotic program. There wasn’t a lot of communication.
Biz2Credit processed more than 182,000 PPP loans this year, but Arora estimated he had tens of thousands of blocked claims that his company would not be able to fund.
“For the past week we have been criticized,” Arora said. “The customers were very angry, very frustrated, very scared. I can understand.”
This article was originally published in the New York Times.