NEW YORK–New revisions to the Paycheck Protection Program appear to be a victory for the most vulnerable small businesses, offering more generous relief to companies like Solo Ventures that were eligible for only tiny loans if eligible at all.
“If only they could take advantage of the changes,” observes one new report.
With the Small Business Administration having updated its systems again with just three weeks before the program is set to expire, some lenders told the New York Times there just isn’t enough time to adapt to the changes.
“The result has been gridlock and uncertainty that have left tens of thousands of self-employed people frantic to find lenders willing to issue the more generous loans before the program ends on March 31,” the Times reported.
JPMorgan Chase, the program’s largest lender this year in terms of dollars disbursed, told the Times it doesn’t plan to act on the new loan formula before it stops accepting applications on March 19. Bank of America, the second-biggest lender, also told the Times it opted against updating its loan application and said it would contact self-employed applicants to manually sort out their applications — but stopped accepting new ones March 9.
“We have 30,000 applications in process and want to allow enough time to complete the work and get each client’s application through the SBA process,” Bill Halldin, a Bank of America spokesperson, told the publication.
‘Arbitrary & Chaotic’
Even lenders that will be offering the loans up to the congressionally imposed deadline were unable to reprogram their systems until the Small Business Administration officially updated the rules and began accepting applications with the revised loan formula, the report observed.
“It just seems so arbitrary and chaotic,” Paul Hastings, a self-employed graphic designer in Los Angeles who applied for a loan on Feb. 24, told the New York Times.
Hastings said he applied through SmartBiz, a broker that farms its applications out to a network of lenders. The Times noted he assumed his application would be automatically updated to take advantage of the new rules, but on March 9 he received a form letter telling him that his loan had been processed under the old ones.
The problem: those rules calculated a sole proprietor’s loan based on the 2019 or 2020 profit they reported to the Internal Revenue Service. That meant unprofitable businesses were ineligible — a restriction that did not apply to larger businesses.
Had 2 Choices
Under the new formula, sole proprietors can get loans based instead on their income before expenses. That opens the program to unprofitable businesses and allows those that did report a profit to claim a bigger loan, up to a maximum of $20,833, the Times pointed out.
“The letter gave Mr. Hastings two choices: Take the offered loan — for an amount thousands of dollars less than he would get under the new rules — or cancel his application and start over. But if he did that, the letter warned, he risked not getting any loan at all before the deadline,” the Times reported.
Ultimately, Hastings didn’t have to choose. After the Times report, he said SmartBiz contacted him and said it would “help him secure a higher loan amount” if he qualifies.
“Business owners who haven’t had the benefit of such hand-holding have flocked to forums like Reddit to hash out their options and to swap tips on which lenders are using the new formula,” the Times reported. “’Desperate for Guidance!’ one typical post reads. ‘Reaching out to see if anyone can help me figure out this absolutely monstrous failure.’”
Compounding the Disarray
According to the Times, the disarray has been compounded by the other major change announced by President Biden: a 14-day window that ended March 10 during which the Small Business Administration accepted applications only from companies with fewer than 20 employees.
“The intent was to get aid to needy businesses, especially those run by women and minorities. The vast majority of those businesses are sole proprietorships that would benefit from the new formula, and many rushed to take advantage of the priority period,” the Times stated. “But the nearly two-week delay for the more generous rules put lenders in a tough spot: They could pause applications from sole proprietors, creating a backlog they would later have to unravel, or they could approve applications under the previous formula, which would result in much smaller loans for their customers.”
According to the times, Biz2Credit, which has made more loans this year than any other lender, temporarily stopped accepting applications while it worked to adjust to the new rules. It has since resumed. Other large lenders — including Cross River Bank and Customers Bank, which round out the program’s top five lenders — said they had begun processing loans on March 8 using the new formula.