Many Small Businesses Still Waiting For Federally Authorized Loans During Time Of Extreme Duress

Many small business owners across the U.S. are complaining that they face obstacles in gaining emergency loans granted under the auspices of the federal government’s $2.2 trillion stimulus program.

“There are very few business owners who have successfully gotten the money,” said Amanda Ballantyne, executive director of the Main Street Alliance, an advocacy group for small businesses. “Money isn’t flowing yet.”

One of the reasons for these delays has to do with how the Small Business Administration, which is administering the $349 billion Paycheck Protection Program, or PPP, has failed to provide adequate guidance to banks giving the loans. CBS News reported that in some cases the SBA has failed to issue a legal document known as a promissory note, which are required to close loans.

In addition, the SBA’s loan portal, E-Tran, has glitches that make it difficult for some banks to accurately input borrower information. Sometimes the site crashes, further delaying loan applications.

“The sheer volume of people trying to get into the system at the same time overwhelmed it,” said Paul Merski, group executive vice president of the Independent Community Bankers of America.

“There are a lot of problems just beyond the amount of money,” says John Arensmeyer, the CEO of Small Business Majority, a small business advocacy group. “There are a lot of administrative and practical hurdles that need to be overcome.”

But SBA claimed that more than 550,000 loans valued at $141 billion had been approved under the program as of Thursday.

PPP loans carry a 1% interest rate and were created in order to keep small business workers on payrolls for eight weeks. Borrowers who keep or rehire most of their employees can be reimbursed for their entire loan amount and interest.

“SBA, working closely with Treasury, launched an unprecedented $350 billion assistance program in just one week,” said Jim Billimoria, an SBA associate administrator and spokesman. “This is a historic achievement in an incredibly short amount of time. During this time, issues identified by lenders and borrowers have been quickly resolved.”

The Wall Street Journal cited the case of Eric Sandoval, who runs an auto rental business in Golden, Colo. He said six banks initially rejected his application for a PPP loan, although he later was able to file through an online broker and his principal bank.

He is still waiting for his money

“I just know that it’s not getting in the hands of actual businesses,” he said. “Getting the money out of the government’s hands, out of the banks’ hands into the actual business owners’ hands. That’s where the problem is.”

Attorney Adam Greene at the New York business litigation firm of Robinson Brog said 20 of his clients were still waiting for loans that had already been approved.

“They were expecting money within one day,” he said. “Now it’s become more realistic to think it will be within 30 days.”

Evan Obsatz said business at Butterfield Market, a New York City grocery, has stalled during the crisis.

"We [once] had 2,000 customers a day walking in," Obsatz told CBS News. "Now we're averaging just a couple hundred. We're still an essential business, but our funds are running low.”

He said he can realistically stay in business for a few more weeks.

"[We] heard that the [stimulus] funds will be released in the last half of April," Obsatz said. "That's two to three weeks away, so we'll see."

Meanwhile, some bankers worry that the SBA hasn’t allowed banks to fund loans with its full guarantee.

“A week into the program, there is still a lack of clarity and conflicting guidance,” said Richard Hunt, chief executive of the Consumer Bankers Association.

Alan Dule, an accountant, also suspects the SBA cannot adequately process the mountain of loan requests it has received in such a short period of time.

In all of 2019, SBA handled only 60,000 loan applications.

"The system is not prepared and capable of processing all these millions of loans, that's the worry," Dule said. "The SBA has never gone through anything like this before and I have the sense that they're overwhelmed. I'm trying to be realistic about [when funds will arrive], and I'm telling my clients the same thing.

A source close to the National Federation of Independent Business, a small business advocacy group, told CBS News it was unaware of any of its hundreds of thousands of members having received funds that have already been approved.

NFIB estimates that about 70% of small businesses have applied for federal stimulus loans.

Rick Lazio, a former U.S. Representative and banker at JPMorgan Chase who now works at Alliantgroup, a tax-credit consultancy, said delays in disbursements could discourage other business owners from applying for loans – and that could hurt the recovery of the economy.

"It matters because there is a growing lack of trust," Lazio said. "It's significant that the loan had been approved, but you need the money in hand. Business owners are under tremendous stress."

Meanwhile, banks are getting swamped with loan requests.

“We have a million borrowing customers that we’re trying to get through the system first, then our second priority will be the customers who have the core operating account with us, but don’t borrow anywhere,” Brian Moynihan, CEO of Bank of America, said last week.

Todd McCracken, president of the National Small Business Association, said banks also need to help individuals and businesses who are not their customers.

”It may well be the companies most in need of assistance are the companies that don’t have a current banking relationship,” he says.

Arensmeyer added that small business owners who have established banking relationships will receive preferential treatment.

“Businesses in underserved communities, businesses who don’t have that kind of credit, they’re going to the back of the line and they’re not making headway,” he said.