WASHINGTON–Credit unions and other financial institutions spent the weekend sorting through a chaotic first day on Friday of the Paycheck Protection Program and are expecting more of the same today.
Over the weekend news media reports and small business owners used words such as “chaos,” “confusion,” “plagued with problems” and “frustration” to describe the Paycheck Protection Program (PPP), which was hurriedly put together following passage of the $2-trillion CARES Act.
The program offers loans of up to $10 million to companies that employ fewer than 500 people. Those loans are forgiven as long as the businesses meet certain conditions, such as using the majority of the funds to pay worker salaries for the eight weeks following the loan closing.
Several vendors have already announced PPP platforms, more information on which appears below.
As CUToday.info reported here, CUNA, NAFCU, the Defense CU Council and others were all pressing the SBA for additional guidance and clarity as last week came to a close, including changing one rule that is preventing credit unions from being recipients of funds to cover their own payroll costs. CUs can only participate as lenders if they are SBA certified.
Varying Reports on Loan Volume
According to the Treasury Department, $4.3-billion in loans (1.1% of the $359 billion available) were made to businesses on Friday to cover their payrolls, even though three of the biggest banks in the country—Citi, JPMorgan Chase and Wells Fargo—initially said they weren’t taking applications until the federal government provides more guidance on the Small Business Administration (SBA) program.
However, late on Friday Bank of America tweeted it had processed $6-billion in applications on day one. Overall, Bank of America reported receiving over $22 billion in requested funds as it said it was seeing nearly 10,000 applications per hour. On Saturday, Wells Fargo opened a portal where customers could register and get an email back “with next steps within in a few days,” while Citibank said on its website “applications will be available shortly.”
By Saturday, financial institutions were reporting tens of thousands of applications just in the first day, overwhelming SBA’s computers. The SBA usually processes about 60,000 loans in an entire year, noted NBC News.
Also on Saturday, President Trump said during a news briefing the SBA had processed 28,000 loans in 24 hours.
In addition, on Saturday an email from the Small Business Administration to lenders apologized for "ongoing technical issues," which included slowness and the inability of "many" lenders to create new logins or reset passwords, NBC News further reported.
The SBA has information on the program here.
CUNA, Leagues Raise Concerns
Last week, one day ahead of the program’s launch, CUNA and the American Association of Credit Union Leagues, in addition to 35 state leagues themselves, wrote to Treasury and the Small Business Administration leaders Thursday calling for changes in the program, which is available through SBA-approved lenders only to help businesses keep workers on their payroll.
“Credit unions’ participation is critical to the success of this Program. Small business lending, including but not limited to SBA 7(a) lending, is very important to what we do, built on relationships, local knowledge, and underwriting skills honed over generations. Our chief concern is that, as written, the PPP may be problematic,” the letter reads. “Credit unions were encouraged that the PPP was included in the CARES Act. We were grateful for the opportunity to provide direct input into crafting the statutory parameters of PPP.”
Like many other groups and financial institutions, the credit union letter stressed a chief concern is the “compressed timeline in which credit unions received the interim final rule hours before the PPP loans go live.”
“Furthermore, we have been told that there will be a lending platform to support the loan process but, to the best of our knowledge, our members have not had access to the platform,” the letter continues. “These issues will not keep credit unions from offering PPP loans, but will only add to the challenges of operating a business that is an integral part of the nation’s critical infrastructure during these trying times.”
Other Concerns
Other concerns raised in the letter from credit unions:
- Loan terms are unreasonably short, as the interim final rule provides for two-year loans. The CU letter argues the terms are “unreasonably short term and will create hardship for cash-starved small businesses,” and the CARES Act provides for loans of up to 10 years. The letter further says CUs believe Treasury and SBA should use authority given them by Congress to provide loan terms of 10 years or as close as possible to that term.
- Lender liability. Since the rule provides little guidance on critical aspects of the PPP, including on documentation required to determine eligibility, the process for submission and approval of the loans by SBA, the collection of servicing fees and the determination of funds to be forgiven, the letter states. This lack of guidance “shifts too much liability to the lender and, despite the guarantee, creates too much process risk relative to the very limited interest rate,” the letter reads.
Credit unions are also asking the federal government to amend rules so that CUs themselves can apply for funds under the Paycheck Protection Program, but currently can’t do so because they “primarily engage in the business of lending.”
“This is an unprecedented time and likewise, unprecedented program, and thus SBA should temporarily modify the rule to allow credit unions to borrow under the Paycheck Protection Program,” CUNA wrote.
NAFCU Presses SBA
As CUToday.info also reported here, NAFCU was also seeking more guidance.
In a letter to SBA Administrator Jovita Carranza, NAFCU President and CEO Dan Berger said the majority of FICUs themselves “qualify as 'small businesses' as defined by the SBA industry-based size standards."
Separately, NAFCU is also calling on the SBA to clarify eligibility for loans under PPP, including the eligibility of CUs to apply for funds to cover their own payroll costs. NAFCU noted that like other small businesses, federally-insured credit unions "are facing difficult staffing and payroll decisions" in the wake of the coronavirus.
CUSO Promotes Participation
Among the CUSOs participating in the Paycheck Protection Program is Greater Commercial Lending (GCL), a wholly-owned subsidiary of Greater Nevada Credit Union. The CUSO said it will continue to accept PPP applications from all interested Nevada based businesses, regardless of whether they have a current relationship with the company.
“This is just the latest example of how Greater Commercial Lending delivers on helping more businesses and people live greater in a variety of ways,” said Wally Murray, Greater Nevada’s president and CEO. “This new loan program can provide critical assistance to small business owners as they seek to protect their businesses, and continue paying their employees and important bills. We are encouraging all Nevada small businesses that have been impacted by COVID-19 to consider applying for a loan under this new program that has a low 1.00% interest and very favorable repayment terms. ”
Credit Unions Not Alone
Meanwhile, as a new business week begins lenders of all types continue to press Treasury and SBA for additional direction. “Unfortunately, the program was rushed through the implementation process and was pushed live before banks had the ability to create stable processes for accepting and funding these loan applications,” noted Forbes.
Some banks were the subjects of negative media and social media coverage last week after announcing they would limit applications to customers that had both an established bank account, and an existing loan product, such as a small business loan, business credit card or business line of credit.
Another point of contention from many small business owners: a lack of clarity regarding the inclusion of 1099 contractors in their payroll cost calculations.
Millions in Need
As CUToday.info has reported, in the past two weeks 10-million Americans have filed for unemployment, a figure economists say is actually low, as it doesn’t count all those who have been unable to have their claims filed as a result of overwhelmed state computer systems.
On Friday, the U.S. Chamber of Commerce released a poll that found 24% of small businesses say they will close permanently within two months or less due to the economic fallout of the coronavirus pandemic.
Many expect Congress to provide additional funding to the Paycheck Protection Program.
"After the financial crisis, we lost 1.8 million small business owners," Karen Harned, executive director of the National Federation of Independent Business, told NBC News. "After the reaction I'm hearing, I'm worried about what that number might be after this is over."
PPP Solution From LoanStreet
In New York, LoanStreet said it has launched a new, specialized origination, servicing and reporting solution for financial institutions that plan to participate in the new SBA Paycheck Protection Program. Financial institutions of any size can streamline the process and ensure compliance with the new law using LoanStreet, the first fully integrated platform for efficiently sharing, managing and originating loans, the company said.
LoanStreet said the SBA PPP lending platform includes an SBA PPP underwriting module, preloaded lending terms, an SBA PPP serving module, intuitive integrated platform, and efficient, fully electronic process management.
FIS Intro’s Solution
In Jacksonville, Fla., FIS said it is enabling the ability for U.S. banks and credit unions to provide loans and other critical economic relief to small businesses and merchants under the U.S. Small Business Administration (SBA) Paycheck Protection Program.
“Due to the traditional time- and paper-intensive nature of the lending process, many banks and credit unions will be challenged to meet anticipated high demand for loans under the relief program. To streamline and speed the process, FIS is working with a growing number of financial institutions to leverage its proven Real-Time Lending Platform, which digitizes and automates the lending process,} the company said. “The SBA-approved FIS Real-Time Lending Platform is currently being used by a range of financial institutions for originating a high volume of loans and can be scaled to meet anticipated demand under the PPP program.”
FIS said it is also waiving minimum monthly service charges for the month of April for its U.S. and U.K. merchant clients. The company said it is also providing other value-added services including free virtual terminal access for U.S. merchants and retailers who are enrolled in the Worldpay from FIS iQ online portal for use in remote processing.