A new batch processing system the Small Business Administration (SBA) is implementing in the second $320 billion round of the Paycheck Protection Program (PPP) is putting smaller lenders at a disadvantage, a credit union trade group says.
After the program's first $350 billion round of funding ran dry after less than two weeks, many banks continued taking applications in preparation of a second infusion of funds, which became available Monday.
The loans are meant to aid small businesses struggling amid the pandemic and are 100% forgivable so long as the funds are used for payroll.
Anticipating a deluge of applications, the SBA said Sunday it would pace the rate of applications accepted into its E-Tran system so all lenders could submit at the same rate.
The agency first asked lenders to submit batches of at least 15,000 applications but cut that figure to 5,000 around midday Monday after problems surfaced.
But the 5,000 minimum required to submit loans in batches is still too high to benefit smaller lenders such as credit unions, Credit Union National Association (CUNA) Chief Advocacy Officer Ryan Donovan told Banking Dive.
"I exchanged emails with the CEO of one of the largest credit union SBA lenders in the country, and based on that email, I don't think he's gonna have 2,500 loan applications from his credit union, much less than 5,000 that would be necessary to process in bulk," Donovan said.
Donovan said he’s not sure why the SBA made the threshold "so high."
"Someone suggested to me that it was intended to level the playing field, but if the SBA is approving those applications in bulk, then that is doing just the opposite of leveling the playing field," he said.
It’s not clear how the SBA is approving the batch loans that are submitted, but Consumer Bankers Association President and CEO Richard Hunt told Politico, "What we're seeing is it's all or nothing in the batching system."
The SBA did not respond to Banking Dive’s request for comment.
The new batch processing system for the PPP is among several changes to the program, including a $60 billion cap on the amount of forgivable loans any one lender can fund. The second round of funding also sets aside $60 billion in loans for processing by banks and credit unions with $50 billion or less in assets.
CUNA estimates around 500 credit unions are participating in the PPP, representing a small fraction of the overall number of lenders vying for the $320 billion in small-business relief loans.
The SBA said it had approved 475,952 loans totaling $52 billion from 5,182 lenders as of 1 p.m. Tuesday.
In the first round, credit unions provided about 99,000 PPP loans valued at about $6.4 billion, CUNA said. Average credit union loans were just under $64,000, according to the trade group.
As the SBA’s systems suffer under the strain of an unprecedented demand for loans — E-Tran has experienced outages during both funding rounds — Donovan said he hopes any future relief packages will include IT investments to help expand the capacity of the program.
"I don't know that there needs to be a lot of changes from the policy side, but I think what they need to be doing is working with folks in the IT space to figure out how to build something that can process the demand that exists for this type of lending," he said.
Complaints about speed and access to the SBA’s system, however, aren't new, Donovan added.
"It's something that we've heard from lenders for a number of years," he said. "Any investment in expanding the capacity of this system would be a good assessment to make, particularly if there's a third round, which I think, we can't take for granted at this point."