A $349 billion program intended to help small businesses meet payroll while struggling to stay open during the COVID-19 pandemic has disappointed local businesses and advocacy organizations.
In response to the outbreak of the coronavirus grinding the nation’s economy to a near standstill, Congress passed a $2 trillion stimulus package, called the Coronavirus Aid, Relief, and Economic Security Act. That bill included the Paycheck Protection Program, which provides forgivable loans to businesses to pay employees and forgo layoffs.
So far the program, administered through the U.S. Small Business Administration, which provides loans via private banks, has underwhelmed some, spurred lawsuits from others and left some politicians calling for changes to the hastily assembled and approved initiative.
Sen. Ben Cardin, D-Maryland, a members of the Senate Small Business Committee, joined nine other Democratic senators, including Senate Minority Leader Chuck Schumer, in urging President Donald J. Trump’s administration to reserve funds for “underserved businesses” that are not clients of banks “that will dominate delivery of PPP loans.”
“Without proactive and sustained outreach, we can expect that underserved communities will be disproportionately harmed – just as they were during the Great Recession when minority business enterprises suffered a precipitous decline in the proportion of SBA-backed loan approvals,” according to the letter from the senators.
Restrictions from banks in terms of the businesses they’ll provide loans to has also sparked lawsuits from at least one local company.
Baltimore-based law firm Rifkin Weiner Livingston LLC filed a lawsuit on behalf of public relations firm Profiles Inc. alleging that Paycheck Protection Program lender Bank of America provides preferential treatment to existing customers.
The complaint filed late last week argues that the PPP provides a limited amount of funds on a first-come, first-serve basis. Bank of America, according to court documents, at first instituted a process that prioritized clients that already borrowed from the bank and denied access to other small businesses, including those that bank with the company.
“After the filing of the lawsuit, BOA has amended its policy and now illegally bars PPP loans to depository-only clients who have a credit card or loan with another bank. BOA is thus unlawfully prioritizing existing customers who are active borrowers of BOA as of February 2020 or have no credit cards or debt with any other financial institution,” according to the complaint.
Bank of America, on its website, requires applicants to have established a small business loan or checking account by Feb. 15. and cannot have a “borrowing relationship” with another bank.
On Wednesday, U.S. District Judge Stephanie Gallagher ordered Bank of America to respond by 5 p.m. Thursday to Profile’s request for a temporary restraining order against the bank.
During the weekend Bank of America reported it had already received 185,000 loan applications totaling $130 million in the first two days of accepting applications. The bank also said it intends to provide $250 million in capital to community development financial institutions with funds from the Paycheck Protection Program.
Demand for the loans has been so high that some banks, including Wells Fargo, have stopped accepting applications.
Complaints about the program are not just limited to potential borrowers. Groups representing business interests in Maryland also criticized the initiative’s implementation.
Marshall Weston, president and CEO of the Maryland Restaurant Association, in a letter sent to news media, knocked the program for its limitations.
At first blush the PPP, Weston contended, looks like the “lifeline that many businesses … are desperately seeking.” That lifeline is largely an illusion, he wrote, noting SBA pushes businesses to apply quickly because the program is first-come first-serve because of a cap on available funds.
“This is not acceptable. This is not real relief, and this is not a real solution,” Weston said.
Further complicating matters, SBA’s online portals for accepting applications repeatedly experienced problems. Most recently the site for handling the applications crashed on Monday.
During a recent conference call with businesses, Steven Umberger, director of the SBA’s Baltimore district office, acknowledged “hiccups” while rolling out applications for the various grant and loan programs the agency’s running. At that time he asked for patience but said he remained optimistic the SBA is ironing out the kinks in the system.
“Now we’re up, we’re quicker, better, we’re easier to use, and better suited to handle the unprecedented volume of applications coming,” Umberger said.