Processing of Paycheck Protection Program (PPP) loans has slowed to a comparative crawl, according to Small Business Administration (SBA) data. While the first five days of the program's second round generated $175.7 billion in approvals, the next six days yielded only $11 billion, Bloomberg reported. That leaves about 40% of the second round’s $320 billion still available.
The sudden drop-off appears to be the result of a number of factors. First, the initial days saw a glut in processing because of a backlog of applications lenders received since the initial funding ran out April 16. Along with that, batch processing has slowed. The SBA initially allowed banks to submit 15,000 or more applications at a time, then 5,000 or more. The agency is now handling applications individually on a rolling basis, an SBA spokesperson told Bloomberg.
Second, the round saw the withdrawal of duplicate applications — from companies who applied for the loans through more than one lender. More than 10% of bigger banks' applications were duplicates, loan brokers and industry officials told The Wall Street Journal. Meanwhile, half of some smaller lenders' applications were rejected because the applicant received a loan from elsewhere, the Journal reported.
Third, larger businesses are looking at other sources of relief, such as the $600 billion Main Street Lending Program — particularly after public companies such as Shake Shack and Ruth's Chris Steak House were publicly shamed after receiving PPP loans perceived to be solely for small businesses. The Treasury Department has given public companies until Thursday to return money they received but do not qualify for.
Last — and perhaps, most telling — some companies are second-guessing whether they're eligible for the loans, or whether the loans are worth the trouble. At particular issue is the requirement that 75% of the loans be spent on payroll for the loan to be forgiven.
"Since we can't hire back our team, our current math is at most 10% [of the loan] will be forgiven for us," Bob Garner, co-founder of Glory Days Grill, a Maryland-based restaurant chain, told the Journal. "It’s basically a large loan we are going to be stuck with."
The payroll stipulation was just one of several aspects to the program that came under fire in an SBA inspector general report Friday.
"Our review of data from round one found that tens of thousands of borrowers would not meet the 75% payroll cost threshold and would therefore have to repay the amount of nonpayroll costs in excess of 25% in two years," Hannibal "Mike" Ware, who oversees the inspector general office, wrote in the report. The payroll threshold, and the two-year time frame for maturity, were not part of the coronavirus relief package that authorized the PPP, he noted. Those were added by the SBA and the Treasury Department during implementation.
Rebeca Romero Rainey, CEO of The Independent Community Bankers of America, urged the SBA and Treasury in a letter Wednesday to reduce the 75% payroll requirement to 50%.
The SBA, in the report, defended the 75% clause, saying it was added "in light of the act’s overarching focus on keeping workers paid and employed."
However, the agency and the Treasury Department came under fire in the report for missing an April 27 deadline to provide guidance on how to calculate the portion of the loan that is forgivable.
"The current lack of clarity is inhibiting critical spending, and only clear and reliable guidance will allow the program to reach its potential," Romero Rainey wrote in her letter.
The inspector general report also lambasted the SBA and Treasury for not prioritizing lending to veterans, women, nonwhite and rural borrowers, as required by the stimulus law. The report suggested revising PPP applications to collect borrowers’ demographic data.
Senate Minority Leader Chuck Schumer, D-NY, said the report "makes clear that the Trump administration must immediately fix the Paycheck Protection Program to help the truly small businesses that have so far not received the help they need."
But other lawmakers have gone further, suggesting that another round of relief circumvent banks altogether.
Sen. Doug Jones, D-AL, wants to use payroll processors, which already distribute wages for about 40% of U.S. businesses, to get money to small businesses. Companies that don’t use payroll processors could get payouts directly from the IRS, Jones proposed, according to The New York Times.
"Another option makes it easier and takes a little pressure off the banks," Jones said. "They’ve been overwhelmed."
Sen. Ron Wyden, D-OR, is proposing that businesses with less than $1 million in gross receipts get reimbursed for a portion of payroll expenses directly from the IRS.
Top Democrats in the House, meanwhile, have suggested including a provision for lending exclusively through nonprofits or community development financial institutions, which lend to poor communities not served by banks, the Times reported.