Thousands of small-business owners who believed they were approved for emergency government-backed loans nearly three weeks ago have been left hanging after their lender struggled to deliver funds as expected.
The confusion swept up businesses that applied for Paycheck Protection Program loans through the online lending marketplace Lendio and one of its lending partners, Ready Capital. Lendio served as a kind of agent in the arrangement, taking applications and then sending them to lenders such as Ready Capital to approve the loans through the Small Business Administration and then send out funds.
But even after Lendio and Ready Capital told borrowers they were approved, many customers did not receive the lifeline they were expecting and say they were given no explanation for weeks. Some are still waiting for the money to reach their bank accounts. What they didn't know was that their lender was more constrained than expected in its ability to deliver the funds and that it would take until the past few days for another lender to step in to complete the process.
"These funds supposedly have been reserved for us," said Joelle Ray, who has been waiting for loan money to maintain a hair salon she owns in Raleigh, N.C. "Why can't we have them?"
The situation ratcheted up the anxieties of small business owners who are fighting to stay afloat and to keep their employees paid during the Covid-19 pandemic. It came on top of worries about the functionality of the Paycheck Protection Program, which got off to a hurried, rocky start on April 3 but has proven to be extremely popular, in large part because the loans can be forgiven if businesses maintain their payroll.
A number of small businesses that turned to Lendio — a fintech startup — did so after they were unable to move forward with bigger lenders, like Bank of America, which limited the types of customers it would accept in the early days of the program.
"I thought it would be more efficient utilizing fintech processes and automated systems," said John Nahas, who works in the fintech industry and sought a loan through Lendio for a Los Angeles-area restaurant he owns and operates. "It's turned out to be be the complete opposite."
According to interviews with several borrowers and a review of emails sent by Lendio and Ready Capital, customers who turned to Lendio at the launch of the program were told April 16 that they were approved and were given SBA loan numbers to confirm.
"This means funds have been reserved for you," Lendio told customers. "The lender will be working with you over the coming days to gather any data or documents related to final underwriting and closing process."
But for customers that were routed through Ready Capital, that did not happen. In the ensuing days and weeks, they struggled to get meaningful information out of the companies about what was happening and received mostly vague email updates.
They turned to social media, peppering Lendio and Ready Capital on Twitter and Facebook with questions about the status of their loans. One April 24 Facebook post by Ready Capital, in which it said it was struggling with extreme volumes of calls and emails, attracted 2,000 comments as borrowers begged the company for information.
What they did not know was that Ready Capital itself — a nonbank lender that had partnered with Lendio in the past — was struggling to follow through with the loans it had approved through the SBA.
In a statement to POLITICO on Wednesday, Ready Capital COO Gary Taylor cited delays caused by "outside factors," including changes to SBA guidance on how businesses without employees would need to verify wage data. He said Ready Capital accepted more than 40,000 applications through its website and referral sources such as Lendio and that its average loan size was $73,000, below the overall program average. He said it reflected the company's support for "true small businesses" such as local delis and nail salons.
The new SBA guidelines for documenting wages, issued after Ready Capital submitted its customers' applications, "impacted us and our borrowers the most, as we had over 9,000 sole proprietors, requiring us to go back to our applicants and request additional documentation, which contributed to the delays."
Lendio CEO Brock Blake in an interview also cited delays the lender faced because of documentation hurdles with sole proprietors and other smaller employers. He, too, pointed to regulations specific to Ready Capital and its lack of access to a Federal Reserve liquidity facility designed to make it easier for lenders to distribute the loans.
"Because of some of those dynamics, Ready Capital is in a very difficult spot," Blake said. "And they weren't the only ones."
Last week, Ready Capital partnered with another lender — Customers Bank — to take on the responsibility of lending money to waiting borrowers.
Customers Bank said it has funded $1.3 billion in loans since taking over. Blake said he expected Customers Bank to finish working through the backlog in the next few days.
In the initial phase of the Paycheck Protection Program, Ready Capital handled about 30,000 of the 70,000 loans approved via Lendio, Blake said. About 15,000 to 20,000 of those Ready Capital loans have yet to be funded, he added.
The SBA declined to comment on this story, though business owners who discussed their situation with POLITICO said they had spoken with officials at the agency. A spokesperson for the SBA inspector general's office declined to comment on the specific situation but said the office is aware of individual concerns regarding delayed disbursements.
Nahas, the Los Angeles area restaurateur whose frustration reached the point where he confronted Blake on Twitter Tuesday, said Ready Capital on Wednesday reached out to him for the first time in three weeks to ask that he resubmit documentation.
"I felt that my application was held hostage," he said. "We were given a premature approval. We were unable to go anywhere else and get funded. So we are at the mercy of whenever Ready Capital can reach out to us to process our loan."