Editor's Note: This story has been udpated since it was originally reported to reflect a confirmation that a rule change by the Fed makes CU board members eligible for PPP loans.
WASHINGTON–Congressional leaders were indicating late on Sunday that Congress is “very close” to a deal on new funding for the Paycheck Protection Program (PPP), while the Fed has announced a change that will benefit CU board members.
The news of additional funding, after the $350-billion program ran out of money less than two weeks after being announced, comes at the same time reports are starting to emerge over which companies have been getting money—and which have not—from the PPP, which was designed to help businesses of 500 employees or fewer to cover payroll costs and other expenses. With news that a number of very large companies have received funds, one banker described the PPP as the “Hunger Games.”
As CUToday.info reported earlier, the SBA said last week at least 1.6 million businesses had been approved for loans through the program, with the money going out on a first-come, first-served basis. In a notice posted on its website, the SBA said, "The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding. Similarly, we are unable to enroll new PPP lenders at this time."
As of Thursday morning at 6:30 a.m., $338 billion in loans had been approved, an SBA official told CNN. By 10:00 a.m., the SBA posted the update on its website. The SBA said it would need the remaining $10 billion to pay fees it agreed to give to lenders in the program.
The SBA further stated it would be “unable to maintain a queue for PPP applications."
‘Close’ on Negotiations
In Washington, Speaker of the House Nancy Pelosi (D-CA) said of negotiations to provide more funds, "We're close. We have common ground."
Republicans and Democrats in Congress have been at an impasse over a host of issues related to how the new funding should work and which companies should receive priority. The two parties have been at odds because Republicans want to pass a so-called "clean" bill that would only include $250 billion in additional money for the PPP, while Democrats want to add in another $100 billion for hospitals, $150 billion for states and a boost in food assistance funding in addition to money for small business loans, reported The Hill.
Treasury Secretary Steven Mnuchin has been at the center of the negotiations.
Late on Friday Democrats in the Senate called on the Small Business Administration, which is administering the PPP, to provide more complete data on where the $350-billion has gone and whether it was dispersed in an “equitable” way.
Rule Change Affects Directors
Meanwhile, on Friday the Federal Reserve announced a rule change it said it designed to bolster the effectiveness of the PPP by temporarily modifying rules that certain bank directors and shareholders can apply for PPP loans for their small businesses.
The conflict issue related to board members has become a question at credit unions, where many directors are also small business owners. In some cases, CUs have directed board members to other credit unions participating in the PPP as a workaround. NAFCU has confirmed the rule change applies to CU board members.
The SBA clarified that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits and without favoritism, allowing those individuals to apply for PPP loans, consistent with SBA's rules and restrictions. The change only applies to PPP loans.
One CU’s Experience
Meanwhile, credit unions continue to share stories of their own experiences with the PPP to date.
In Medford, Ore., Gene Pelham, CEO of Rogue Credit Union, told local News10 the program has put many local credit unions in a difficult situation because they were not set up with the Small Business Administration.
Noting the PPP had been set up “basically overnight,” Pelham told the news outlet his credit union was finally able to get up and running and had managed to process a “good amount” of PPP loans before the program ran out of money.
In all, Pelham said Rogue Credit Union was able to process 300 applications and push through 225 applications and loan over $12 million to local over just three days, which he said is two years’ worth of those types of loan applications for the CU.
Pelham said Rogue Credit Union is doing what it can to be prepared when the government approves a second round of loans.
"We had a system, we were processing over 100 loans a day, then today they ran out of funds," he told News10 late last week. "If it's re-funded we are going to be ready to go to help those members who didn't get their applications processed."
Banker: Not Even Through 5 Minutes of Apps
At JPMorgan Chase, the nation’s largest bank, a senior executive told NBC News, “We didn’t even get through the first five minutes of applications.
The bank received more than 60,000 applicants for PPP loans in the first five minutes the program was available. Of those, approximately 27,000 were approved.
Another senior executive at a bank where the pipeline was quickly stuffed with applications told NBC News, “It was Hunger Games.”
According to one analysis, had each one of America’s small businesses applied they would have received about $12,000 each. But Fivestars, a small business marketing and loyalty platform service, said 75% of the small- and medium-size businesses with current mandatory shutdowns would need a $55,000 infusion by May 1 in order to successfully restart when the guidelines are lifted.
Not Mom & Pop Shops
Many of the businesses approved for PPP funds have been anything but the small mom and pop shops many envisioned. Among those receiving funds have been an investment firm that owns the Ritz-Carlton Coconut Grove, which applied for 48 of the loans; a Maryland hotel company with more than $1.5 billion in revenue in 2019, which applied for more than 50 loans (and was approved for 10 prior to the funding running out), and Ruth’s Hospitality Group Inc. — the parent company of Ruth’s Chris Steak House that made $42 million in profits last year and spent $41 million buying back stock and paying dividends and which has received $20 million through two small business loans, according to the Orlando Sentinel.
“Midsized and large hoteliers and restaurateurs are qualifying for the potentially forgivable loans — more than one, in many cases ― under special rules written into the program at the request of industry lobbyists, who argued that hospitality businesses have been uniquely devastated by coast-to-coast travel bans, shutdowns and shelter-in-place orders,” the Sentinel reported.
Lobbying Congress
The hotel and restaurant industry has been lobbying Congress to allow it to spend less of their PPP loan proceeds on wages for workers and more on other expenses, such as mortgage principal or franchise fees that get paid to larger companies like Marriott International Inc. and McDonald’s Corp, according to the report.
Unions representing those workers have pushed back on those lobbying efforts.