The issues still plaguing the Paycheck Protection Program

It has been several days since the second round of PPP loan processing began. Bankers were hoping for a smoother ride this go-around, but many of the same problems that plagued the first round of the Paycheck Protection Program are still on the scene in round two.

The night before the program launch, banks told NBC News they were still waiting to hear final guidance from the Treasury Department, and borrowers still found no standard application process even after the program went live.

Many of the problems have been centered around E-TRAN, the system that the Small Business Administration (SBA) uses for lenders to upload applications. The SBA assured the system has been calibrated to only allow a certain number of submitted loans per hour to keep things balanced between lenders from financial institutions of all sizes, as explained by an SBA spokesman, “The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-TRAN system. If a lender goes above the pacing limit they will get timed out."

Many banks reported issues with login, lockouts, and slow systems. These problems echo complaints from the first round of crashing systems and hours of downtime. Some in the banking industry speculate there is more at play here, that the actual issue is simply that the SBA system cannot handle the volume of applications being processed by the banks.

Another pivotal issue has been how lenders prioritize which clients get money first. There are millions of eligible businesses and limited funding, so naturally not everyone will receive funding from the Paycheck Protection Program. $60 billion has been allocated specifically for small businesses. “Current and former government officials warned and acknowledged that there were gaps in the design that could leave behind some of the businesses that need the relief the most,” reports NBC News.

During the initial round of PPP funds, some publicly traded companies received millions in PPP loans, which raised a lot of public outcry regarding if these companies should even qualify in the first place. These companies have since announced they would give back their funds. Despite these concerns, Congress did not change the eligibility requirements for this second round, however, Treasury Secretary Steven Mnuchin, has said his department would audit any company taking out $2 million or more in PPP loans. “The move comes in response to news that several public companies and organizations, such as Shake Shack, Ruth’s Chris Steak House and even the Los Angeles Lakers, applied for and received such loans,” reports BankingDive. 

People will be watching who gets the money this time around. Regarding this concern, Senator Marco Rubio said in an interview with MSNBC, "I don’t want to read headlines that the well-financed, well-capitalized businesses came in and were able to suck up all the money and now we ran out of money and we can’t help the small business down the street.”

“If there is not sufficient governance and accountability such that worthy small businesses have to shut down, and then we find out that the undeserving high-income small businesses or politically connected businesses are the ones that get the money ... then that will be a credibility disaster for the program,” said Austan Goolsbee, a University of Chicago economist who was chair of the Council of Economic Advisers in the Obama administration.

President and CEO of the Bank Policy Institute, Greg Baer, said in a statement, “Congress and Treasury continue to update the PPP program with new requirements and guidelines, which creates the potential for operational and technical issues.” He adds, “It is important to remember that in normal times a program of this size and scale would take many months to get up and running, so some disorder is inevitable."

From the banking industry side, many are concerned with managing these loans after the coronavirus pandemic passes. There is still uncertainty regarding the loan forgiveness aspect of these loans as well as how to service the non-forgivable portion of these loans. In a In a recent Forbes article, fintech author Ron Shevlin writes, “Many people don’t realize that not every bank was an SBA-approved lender prior to the PPP. More than 4,000 new SBA lenders have never had to deal with the servicing and reporting requirements on these loans.” Bankers are also concerned with the aforementioned audit requirement mentioned by Secretary Mnuchin. It is unclear if the banks will be the ones doing these audits. Shevlin also mentions, “the Treasury has provided unclear and non-existent guidance on how the retained portion of PPP loans will be categorized as debt on banks’ balance sheets.”

The glitches and gaps may be frustrating to both lenders and applicants. The focus is finding the balance between getting billions of dollars into the hands of small businesses in enough time to actually help keep their doors open, and doing it the best and right way. Time will tell exactly how successful this program has been and what struggles this creates for the banking industry and small businesses going forward.