The latest round of funding from the Paycheck Protection Program opened up on Monday morning at 10:30 a.m. ET with a new set of rules for distribution of the additional $310 billion in funds — but a familiar-sounding set of problems.
Lockouts, login issues and sluggish systems marred the Small Business Administration's loan approval process, with each bank unable to submit more than a few hundred applications. One bank was locked out of the system after submitting just 60 loans.
The system is so limited in its current state that it will take nearly a month to get through the entire queue, one banking executive told NBC News.
The issues were "extremely disappointing" but "entirely predictable," said Neil Barofsky, former special inspector general for the Troubled Asset Relief Program (TARP), which had oversight for some of the corporate funding relief during the 2008 financial crisis.
When the program began at midnight on April 2, banks were still scrambling to process final guidance issued only hours before. Loans had to be submitted manually. Ultimately, the top 10 lenders only approved around 22,000 applicants each before the $350 billion officially ran out.
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But after two weeks of refining their systems, processing documents from hundreds of thousands of applicants, and hiring and training personnel across the country, the five largest banks had more than 1 million applications for over $100 billion ready to go by 10:30 a.m., senior banking executives told NBC News, all backlog from the first round of applicants.
During the last round, some major banks said only applicants who submitted within the first few minutes ended up getting approved. Those whose applications were processed later were still in line waiting, meaning that the small businesses getting funded this week are likely still only those who applied right away on April 4.
That’s minus any borrowers who withdrew their application, such as publicly traded Shake Shack and Ruth’s Chris, multimillion-dollar restaurant chains who returned funds after getting roasted for receiving upwards of $10 million in funding while millions of small businesses in greater need were left waiting.
Last week, the Treasury Department emphasized existing guidance that companies need to certify they really need the loans to survive, bringing fresh scrutiny to the over 200 publicly traded companies that have so far disclosed receiving a total of $800 million in small business funding.
Preparing for the Monday onslaught, the Small Business Administration added new guardrails over the weekend to the massive government intervention program that is being built on the fly even as it pumps hundreds of billions into the economy.
During the first phase, the SBA’s loan guarantee system repeatedly crashed under the weight of a higher volume of loans in a few days than it normally receives in a single year, and was inoperable for hours at a time.
Banks with a large number of applicants will send a file containing a minimum of 5,000 loans to the SBA. “Submissions will be processed individually” and “the loans of all lenders will be processed at the same rate per hour,” according to the new guidance, up to a maximum of 350 per hour.
No lender will be able to originate more than $60 billion in loans, according to the new guidelines.
“SBA notified lenders yesterday that pacing of applications into the E-Tran system would occur, meaning all lenders would be able to submit at the same rate per hour," SBA Administrator Jimmy Billimoria told NBC News.
“The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-Tran system," he added. "If a lender goes above the pacing limit they will get timed out.”
A new “lender gateway” built by Amazon Web Services for the SBA was supposed to make make it easier for some new lenders to swiftly submit applications to the SBA’s system. However, not all banks are ready to use it. Amazon did not respond to multiple NBC News requests for comment.
Community bankers across the country were still submitting applications manually, and told NBC News they had experienced lockouts and slow processing speeds.
"We are hearing from bankers all over the nation, they are locked out of the SBA systems and unable to process their PPP loans. So, challenging and frustrating PPP relaunch to say the least," said Paul Merski, spokesman for the Independent Community Bankers of America, representing 99 percent of banks.
"We were able to get a few applications approved shortly after 9:30 a.m. our time, and after that it was very slow going with lots of login problems," said Bill Day, senior vice president for corporate communications at Frost Bank, a large Texas regional bank. "We’re working around it to get applications submitted individually."
As of 3:30 p.m., the SBA said it had processed more than 100,000 loans from over 4,000 lenders. The agency said demand that was even greater than the initial round of PPP was slowing response time, but that the organization was working continuously to help small businesses.
While bankers say they expected some disorganization under difficult and hurried conditions, the program has been evolving, creating both improvements and complications.
“Congress and Treasury continue to update the PPP program with new requirements and guidelines, which creates the potential for operational and technical issues,” said Greg Baer, president and CEO of the Bank Policy Institute, a research group representing larger lenders, in a statement. “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."
“It’s seeing what happens and where the needs are,” Pelosi said in an interview on MSNBC’s LIVE with Stephanie Ruhle on Monday morning. “Let’s see how this goes, it could all be gone very fast.”
All $310 billion could be gone within “48 hours,” estimated Richard Hunt, president of the Consumer Bankers Association, a trade group representing large banks, last week.
At large retail banks, the backlog is so big that any borrower applying for the first time this week is unlikely to get approved, according to senior banking executives. However, that shouldn’t stop any business from applying, since legislators have not ruled out further rounds of funding.
Small businesses may find better success working with small community banks which, thanks to looser regulations, have been able to grab more funds relative to their asset size than larger lenders.
Online non-bank lenders such as Square and Paypal have also now been approved and are taking applications.
"Everyone has good intentions, but sentiment doesn't solve system breakdowns, and that's where we are," said one head of a major bank.