Massive small business rescue gets off to stormy start

A small business lending program designed to halt an avalanche of layoffs got off to a rocky start on Friday as banks scrambled to figure out how to process a rush of eager applicants based on guidelines the Trump administration published just hours earlier.

Wells Fargo was not yet offering the government-guaranteed loans established by the $350 billion program that Congress passed last week, but JPMorgan Chase was. Bank of America was among the first big banks to start accepting applications — and said it received 85,000 applications requesting $22 billion.

But in a sign of the chaos surrounding the rollout, Bank of America faced an immediate backlash from account holders who were turned away because they didn't have an existing lending relationship with the bank, which set priorities for borrowers in a bid to manage the deluge. By the afternoon, the lender signaled it would offer loans to more borrowers amid pressure from Sen. Marco Rubio (R-Fla.) and angry customers attacking the bank on social media.

To make matters worse, bankers reported problems with the Small Business Administration's online portal needed to make the loans and said they were still missing key forms.

The rollout is one of the first big tests of whether the record $2 trillion economic rescue package that Congress enacted last week will get help to Americans desperately in need as the coronavirus pandemic ravages the economy. The loans can be forgiven if the business maintains its payroll — a critical trade-off now as jobless numbers spike to record levels.

Many in the industry said lenders wouldn't be fully up and running and issuing money to small businesses until next week, a long wait for many companies facing ruin in the face of the spreading pandemic.

"My guess is all the banks will be hitting on all cylinders somewhere around Tuesday and Wednesday," Consumer Bankers Association President and CEO Richard Hunt said. "There will be many loans processed today and throughout the weekend, but certainly not the full load."

Treasury Secretary Steven Mnuchin touted early data in a series of Twitter posts. Around 2 p.m., he said more than $1.8 billion in loans had been processed "mostly all from community banks."

The effort appeared to be in real jeopardy earlier this week as banks warned that they didn't have the necessary guidance from the administration to start the program and begin issuing waves of loans. A day before the launch, lenders were still unsure about how cumbersome the applicant verification process would be and what legal protections they would have if they mistakenly issued loans to fraudulent borrowers.

On Thursday night, the Small Business Administration and Treasury Department released new guidelines that appear to have put many lenders at ease, in large part because of streamlined loan-processing requirements.

But for many banks it was too late to launch the program Friday morning, the deadline set by Mnuchin that many lenders called unrealistic. And while the new guidelines offered relaxed loan-verification rules, they were still structured in such a way that banks would have the easiest time offering loans to existing borrowing customers that had previously been vetted.

"Wells Fargo is working as quickly as possible to be ready to assist small business customers as part of the Paycheck Protection Program," the bank said Friday. "We continue to work with the U.S. Department of the Treasury and the U.S. Small Business Administration to obtain necessary program guidance for lender and borrower requirements."

U.S. Bank, one of the nation's largest lenders, said it planned to begin accepting applications this afternoon and will begin by contacting customers who had previously expressed interest in the program. Truist, another large lender, said its teams were "working around the clock" to make the program available and that it was trying to open the application process quickly.

Many banks had started gathering borrowers' information in the days leading up to the launch. On Friday, some were taking a cautious approach and processing a small number of loans to see how the system held up.

"Starting the program is a big part of the battle," said Paul Merski, group vice president for congressional relations and strategy at the Independent Community Bankers of America. "Some of our bankers are doing a few test loans to see how it all works and what needs to be improved in the process."

Technical problems immediately appeared Friday. Tioga State Bank CEO Robert Fisher said bankers were unable to access the SBA "E-Tran" system used for issuing the loans. Banks appeared to be struggling to get technical support from SBA to fix the issues.

"We have gotten in and we have tested one application and gotten an approval," he said. "Many bankers however are not even able to access E-Tran. There have been many technical issues."

Sen. Mark Warner (D-Va.) responded on Twitter: "I know people are working hard on this, but we need to get it sorted out ASAP."

Bank of the West Corporate President Cynthia Blankenship said she was ready to begin giving money to borrowers Friday but was unable to because she still didn't have the necessary loan document template from the SBA.

"I'm a little frustrated that we have not been able to do that," she said. "I wanted to kick off this program and just go into it robustly as much as we could."

Bank of America was the first of the largest U.S. banks to start processing applications. Its rollout illustrated the confusion surrounding the launch of the program and underscored the fears of some borrowers that they would miss out on the loans.

CEO Brian Moynihan said the bank was giving priority to its existing lending customers and getting them through the system first. The bank's second priority, he said, will be customers who have a "core operating account" with the bank but don't borrow.

The giant bank's triage method came as a shock to some borrowers who had been talking to the lender in recent days to prepare their applications but discovered Friday that they did not qualify for the first wave of loans.

Missing out on Friday morning made small business owners anxious about what would happen to their livelihoods and their employees if they were not able to secure one of the loans.

Nick Fiorentino, a partner at the law firm Ciarciaglino, Gell & Fiorentino, said his firm keeps hundreds of thousands of dollars in Bank of America accounts but was turned away Friday morning. He said the bank led him to believe earlier in the week that he would be eligible.

"They should have been conveying it," he said. "They sent emails leading up to it saying, this is what we're doing, this is what you need to have in order. They didn't say you need to have this account or you need to have a loan."

Laura Gross, president of the PR firm Scott Circle Communications, also spoke with Bank of America about the loan program earlier this week to prepare her application only to find out that she would not be part of the initial set of borrowers allowed to apply. She has accounts with the bank but no loans.

Gross said she has a line of credit with another major bank but that the other lender was still trying to figure out all the rules of the program.

"I immediately called" Bank of America," she said. "I said, 'I have to tell you, I'm really angry right now.' ... I said, 'I don't believe you're doing this to loyal customers.'"

It took little time for the mounting customer complaints to reach lawmakers. Rubio, a key player in drafting the small business bailout, took to Twitter and demanded that Bank of America reconsider its prioritization plan. "A ridiculous requirement that isn’t anywhere in law," he said.

"Please, don't be a bunch of jerks," he said in a video addressing banks that received bailouts in 2008. "When you needed the country to help you, they did. Now the country needs you to help them. And we're paying you to do it."

In a memo to employees, Bank of America President of Consumer and Small Business Dean Athanasia said the bank planned to expand its offerings to accommodate more of its small business clients.

"We are ... highly focused on responding to the needs of our core small business customers who do not currently have any borrowing relationship," he said. "We will expand our process soon and in the meantime, are addressing these through an escalation process."