SBA stumbles with second round of emergency loans

The second round of the Small Business Administration’s (SBA) emergency coronavirus lending program is struggling to bounce back from a disastrous start.

A crush of applications locked out thousands of furious lenders and desperate business owners on Monday, requiring many applicants to give it another go on Tuesday after waiting weeks for the new pool of money.

Small businesses have flooded banks, credit unions and financial firms across the country to secure forgivable loans through the SBA’s Paycheck Protection Program (PPP) after President Trump and Congress approved an additional $310 billion in funding last week.

The original $349 billion allocated for PPP loans ran dry in less than two weeks, leaving thousands of businesses without relief as more states extended coronavirus restrictions.

The backlog of PPP requests that built up during the weeks without funding crashed the SBA’s beleaguered processing system, preventing thousands of applicants from securing government assistance.

While the SBA attempted to clear the backlog quickly by accepting batches of applications and imposing pacing systems, those efforts backfired by blocking several banks and credit unions from having their applications accepted.

“The system just kept crashing, all day long,” said Michael Lussier, president and CEO of Webster First Federal Credit Union in central Massachusetts.

After Monday’s brutal start, the SBA’s system returned to functionality Tuesday after the agency curtailed the ability of large banks to overwhelm the pipeline with batch requests and certain automated applications.

Trump said Tuesday that the SBA had processed roughly 450,000 PPP loans, worth about $50 billion, during the second round of funding.

“Today, we’re really celebrating American workers and small businesses, and we’ve done a job for you,” Trump said at a White House event to promote the program.

The disastrous beginning of the second round of the PPP marked the latest in a series of obstacles for the ambitious but hastily assembled rescue program. After several large banks gobbled up a significant portion of the first round of funding for large, publicly traded clients, the Treasury Department warned such firms that they did not likely qualify for a program primarily designed for much smaller competitors.

The PPP has also been hindered by the intense demand for a pool of money almost 24 times larger than a normal SBA year of lending. That larger amount, however, is still considered a fraction of what’s needed to keep small businesses afloat during coronavirus restrictions.

“A lot of these issues are a byproduct of the fact that they’re trying to put so much money out over such a short amount of time,” said Eric Hovde, CEO and chairman of Sunwest Bank in Irvine, Calif., whose company has approved 1,400 PPP loans worth $500 million.

More than 26 million Americans have filed new claims for unemployment benefits since mid-March as businesses shutter to fight the pandemic, laying off employees in the process. Economists project that gross domestic product for the second quarter of 2020 could contract by as much as 30 percent at an annualized rate, a pace resembling the Great Depression more than the Great Recession.

Lenders and analysts estimate that it could take $1 trillion to satisfy demand for the PPP, which has already received $659 billion from Congress.

The mad dash for funding has pushed some business owners to desperate measures to secure aid.

Juha Mikkola, co-founder of Miami coding bootcamp Wyncode and affiliated job placement firm Wyntalent, said this week he was unable to get his application for the PPP’s first round approved through Bank of America and was left clueless about its status until several days after the program’s funding was depleted.

“That was obviously a really tough piece of news to read and still not hear anything from the bank,” said Mikkola, adding that Wyncode saw a 35 percent drop in enrollment for its next round of classes after the economy cratered.

For the second round, Mikkola filed applications on Monday through two smaller banks — Apollo and U.S. Century, one for each of the separate businesses. Both were approved Tuesday, he said.

“I think it’s great that the government is trying to help. I think it’s important to keep that frame of mind,” Mikkola said. “It just seems like a very cumbersome, complicated, manual, time-consuming process for the banks and for the businesses.”