Yesterday’s launch of the Paycheck Protection Program (PPP) was a chaotic mess. More frequently than not, nonprofit executives and business owners were frustrated by their inability (at no fault of their own) to apply for PPP loans.
PPP to Aid Distressed Nonprofits
The PPP was approved by Congress last week to provide forgivable loans to nonprofits and small businesses to encourage them to keep their employees working during the COVID-19 crisis. Under the terms of the CARES Act, the loans were to be easy to obtain and provide 2½ times the borrower’s average monthly payroll costs. Nonprofits and businesses with 500 or fewer employees are eligible for the loans.
Administered by the Small Business Administration, eligible organizations could apply for the PPP loans beginning yesterday (April 3, 2020). As the workweek came to a close, many Law Firm for Non-Profits clients and, undoubtedly, tens of thousands of other nonprofits and, perhaps, millions of businesses, were frenetically scrambling to compile the documentation needed to apply for the loans the day they became available. Many challenges frustrated their efforts leaving them unable to apply for the loans.
Sources of Chaos
The chaos that ensued resulted from many factors. Chief among them was the abbreviated time frame (less than one week) that Congress and the SBA gave banks to start accepting the loans. The SBA did not issue rules to guide lenders until 7 pm EST the day before banks could accept loan applications. Even so, those rules are unhelpfully vague and incomplete.
This left banks in a quandary. With clients clamoring to apply for loans on April 3, banks wanted to be responsive but many felt that the incomplete guidance from the SBA was insufficient – and thus subjected them to unacceptable risk if they made loans that they later found did not meet SBA requirements. As a result, not all banks were ready to accept PPP loan applications the morning of April 3. Some others put procedures in place to accept loan applications later in the day. However, customers of a large number of banks, including some of the biggest, were not able to submit applications by the end of business yesterday.
For example, according to Forbes.com, Fifth-Third Bank informed its customers that it would not start accepting PPP loan applications right away, stating that “We feel it would be inappropriate to launch without the necessary information that our customers need to provide in addition to what the bank needs to process these specific loan applications.” Wells Fargo took a similar, though perhaps more comforting approach. While not yet accepting applications, at did launch a website with a tool so that it’s customers could start the process.
Is There a Long Wait Ahead?
Even those nonprofits and small businesses that were able to apply may have a long wait. We suspect that, though many banks have started to accept applications, they are still working out their loan application process. Until they are finalized, banks will not be able to process loan applications in earnest.
The COVID-19 crisis is an existential one for many nonprofits. They need the relief the PPP loans will provide yesterday, not next week or longer. Without the PPP funds now, many may have to furlough or terminate workers or even shut their doors altogether.
Recognizing that it is operating under great pressure and a challenging work environment (as is everyone else these days), the SBA nonetheless should have been relentless in developing clear, unambiguous guidelines for banks so that they could be ready to accept and process PPP loan applications on April 3. This failure unfairly advantages customers of banks that are more nimble or willing to take a greater risk than others. With PPP funds expected to run out before all nonprofits and businesses in need get their share, Congress and the SBA’s fumbling has unfairly disadvantaged those who just happen to bank at more careful or less nimble institutions.