SBA Loan Program Starts As Small Businesses Make Urgent Applications - The New York Times

SBA Loan Program Starts As Small Businesses Make Urgent Applications - The New York Times


SBA Loan Program Starts As Small Businesses Make Urgent Applications - The New York Times

Posted: 03 Apr 2020 05:39 PM PDT

[Read our Coronavirus Relief Small Business F.A.Q.]

The frenzy began even before most banks opened. By 9 a.m. on Friday, banks had already processed 700 loans totaling $2.5 million for small businesses as the spigot opened on a federal emergency relief program. But that was just the beginning. By early afternoon that number had ballooned to $1.8 billion. And by evening it was $3.2 billion in loans that will go to more than 10,000 small businesses desperate to save themselves.

It was all part of a scramble by small businesses around the country to stay alive by grabbing a piece of a Treasury Department program to pump $349 billion into the sputtering U.S. economy. Small businesses, which employ nearly half of America's private-sector workers, are hemorrhaging, and the loans are meant to help them retain employees or rehire those they let go because of the coronavirus pandemic.

But business owners found that applying for the money was harder than they had anticipated. Lenders had received guidance from the Treasury Department only the night before, just hours before they were to start making loans. On top of that, banks imposed their own rules on which businesses could and couldn't borrow. And many lenders, including JPMorgan Chase, the nation's largest, didn't have their websites ready for borrowers until later Friday.

For small-business owners, many of whom have run out of cash to pay salaries and rent, time was everything. Fearful that the money will run out — Treasury Secretary Steven Mnuchin said the loans would be on a first-come, first-served basis — they flooded banks with calls and emails as they tried to get to the front of the line.

"I've been up all night," said Jeremy Resnick of Jacksonville, Fla., who runs several businesses, including a real estate brokerage and a chain of ice cream stores. "They put out these rays of hope for people, and the reality behind it isn't there."

The frenzy played out against the backdrop of yet another grim unemployment report. On Friday, the Labor Department said employers shed 701,000 jobs last month — the biggest monthly drop in more than a decade, ending a landmark 113 months of job creation. And nearly 10 million people applied for unemployment benefits over the previous two weeks.

Some of their former employers view the relief program, called the Paycheck Protection Program, as a potential lifeline. Companies with fewer than 500 workers have slashed millions of jobs in recent weeks as restaurants, bars, retailers and other Main Street businesses across the country were ordered to shut their doors.

The program offers such companies loans of up to $10 million, which can be forgiven if the business uses the money to retain workers for eight weeks or rehire for positions it cuts in the wake of the pandemic. The Small Business Administration is backing the loans, but customers must apply through banks or other lenders.

Bank of America was the first big bank to begin taking applications, and it had around 10,000 by early Friday, Brian Moynihan, the bank's chief executive, said on CNBC. By evening, its loan requests totaled $22 billion, a spokesman said.

But many Bank of America customers were dismayed to find that the lender would not work with them because they had only accounts, and not loans, with the bank. The bank said it was accepting applications only from customers who had both "a pre-existing business lending and business deposit relationship" as of Feb. 15.

That eliminated Tamara Alexander and her business in Houston, which provides behavioral therapy for children with autism. With 13 employees, Ms. Alexander is struggling to stay afloat with just a trickle of clients who can connect over video chat.

She went to her Bank of America branch Friday morning with high hopes. But although her banker had assured her the day before that she could get a loan, she was told that only those with an existing loan or credit card would be eligible.

"We kind of bootstrapped our way to our business — thankfully we haven't needed to acquire any debt," Ms. Alexander said. "The one bit of help we need, we can't get. And coming from our own bank, it's just so stressful."

Dean Athanasia, the head of Bank of America's consumer and small business group, sent a memo to employees on Friday pledging to "enhance" the program soon "to accommodate more and more of our small-business clients."

But even customers with previous loans were struggling. Melissa Perri, who runs a software consulting firm, ProdUX Labs, in New York that employs six people, has for years had a business bank account and a $42,000 line of credit with Bank of America, she said. But when she tried to apply on Friday, she got a message that said she was denied because she didn't have a credit card.

"I was pretty frustrated," she said. "I said: 'I have multiple accounts with you, and I've been banking with you for years. How is this possible?'"

Bank of America said on its website that a "business credit card, line of credit or loan" would all qualify. That should have made Ms. Perri eligible. A spokesman said the bank would look into her case.

Other large banks imposed similar requirements.

JPMorgan Chase said it would take applications only from people who had a business checking account with the bank as of Feb. 15. A notice on Wells Fargo's website said it, too, required an existing business checking account. Citi has not yet announced its rules; a spokesman said it was reviewing the program's rules and planned to start accepting applications "as soon as possible."

Hundreds of business owners complained on Twitter that they were ineligible for their bank's program or that it had not yet started accepting applications. The National Federation of Independent Business said many feared they would be shut out of the aid effort.

"This has the potential to be the last straw for many small businesses and their employees," it said.

Adding to the pressure: Many expect the program's $349 billion lending pool to run out unless Congress allocates more money. "If we run out of money, we're going to go back to Congress and get more money for small business," Mr. Mnuchin said on the Fox Business Network on Friday.

The Treasury Department had hoped to bring nonbank lenders into the program, but as of Friday, the government had not even released an application that would let financial technology companies apply to participate, industry executives said.

Stephen D. Steinour, the chief executive of Huntington Bank, a lender in Columbus, Ohio, said his staff had worked all night to get the bank's website ready to start taking applications online by late Friday afternoon.

Mr. Mnuchin said banks would be able to approve applications and send borrowers money "the same day." Mr. Steinour said he thought a same-day turnaround would be possible in a few weeks, but not immediately. He expects to have his bank's first batch of approvals — and borrowers' checks — ready by early next week.

Lenders struggled with operational issues throughout Friday.

Chase's website for the program returned error messages at times in the morning, leading many aspiring applicants to assume it was overwhelmed with traffic.

A Chase spokeswoman said that the site had not crashed and that it was taken offline for updates. The bank started accepting loan requests shortly after 1 p.m.

One would-be borrower was Anne Lanier. She and her husband had been working the phones since Thursday looking for a bank to lend them $11,000 to keep paying the five employees of their Brooklyn bar, Black Rabbit, which closed on March 16.

Without immediate help, the couple will be out of business. But the last time they borrowed money for the bar was 13 years ago, from a local bank that has long since discarded the paperwork.

Lenders that Ms. Lanier found on the S.B.A.'s website said they were dealing only with existing customers. The couple turned to Chase, which provides them a business checking account. On Friday afternoon, they submitted a preliminary loan request with their business name, tax identification number and contact information, and received a message saying a Chase representative would contact them. At the time of this article's publication, they were still waiting.

Some of the features that were supposed to make it easier for banks to quickly ramp up lending through the program may actually make it harder for people who need the money to get it.

Participating banks are protected from liability for some things that regulators would normally punish them for, like not performing a thorough-enough background check on a borrower who later turns out to be a criminal. But they aren't completely exempt from having to look into customers' profiles, and one way they can avoid having to do too much extra paperwork is to lend only to existing customers.

That barrier is causing problems for small businesses that have not borrowed money recently. It is an even bigger problem for minority-owned businesses, which struggle even in good times to get banks to lend to them.

"Small-business lending already has a discrimination problem," said Amanda Fischer, the policy director at the Washington Center for Equitable Growth.

Another fear is that the program will be overrun by fundamentally healthy businesses eager to have the government cover up to two months of their payroll costs. Borrowers don't have to document a hardship like a sharp sales drop; they simply have to affirm that "current economic uncertainty" makes the aid necessary to support their "ongoing operations."

Despite the paycheck program's chaotic start, Mr. Steinour of Huntington Bank said he hoped it would play a vital role in salvaging tens of thousands of businesses that would otherwise collapse.

"This is an extraordinary program, and to have it all put together in a week was a phenomenal, around-the-clock effort," he said.

Alan Rappeport and Nathaniel Popper contributed reporting.

People Need Loans as Coronavirus Spreads. Lenders Are Making Them Tougher to Get. - MarketWatch

Posted: 28 Mar 2020 10:41 AM PDT

Banks and financial-technology firms are starting to toughen their approval standards for new loans to consumers and small businesses. That means many people could find it hard to get credit just when they most need it, as the novel coronavirus pandemic puts thousands out of work.

Large U.S. lenders including JPMorgan Chase & Co. US:JPM , Bank of America Corp. US:BAC , Capital One Financial Corp. US:COF and Santander Consumer USA Holdings Inc. US:SAN are among the companies reviewing and revising certain lending criteria, according to people familiar with the matter.

Planned moves include approving fewer consumers with lower credit scores, asking for more income documentation and placing lower spending limits on new credit cards.

American Express Co. US:AXP has scaled back financing offers to small businesses, according to people familiar with the matter. Fintech lenders Square Inc. US:SQ and On Deck Capital Inc. US:ONDK said this week they would do the same.

About half a dozen lenders that have found borrowers through Fundera Inc., an online marketplace for small-business loans, have paused new extensions of credit, said Fundera CEO Jared Hecht. "Lenders have zero idea how to assess risk in this environment," Mr. Hecht said. "There is no model that can predict today if I lend $1, will I get paid back?"

Lenders are concerned that rising unemployment and a potential recession will send loan defaults soaring. The moves suggest at best a pause and at worst an end to six-plus years of a bull run in credit, where financial firms have been eager to lend and underwriting standards for credit cards, auto loans and personal loans have been relatively loose.

Lenders are scrutinizing applications for credit cards and personal loans in particular because consumers often turn to them when they are in a bind. They are usually unsecured, which means lenders have little recourse if a borrower defaults, and they can be the first loans people stop paying when money is tight.

Many lenders have said they would work with existing borrowers who ask for help. Some lenders, for example, are increasing card spending limits or delaying due dates on loans.

But lenders are reluctant to take on additional risk from new customers.

"Even people who applied [for credit] in the last two weeks are more vulnerable [now] than when they applied," said Brian Riley, director of credit advisory services at Mercator Advisory Group.

Loan solicitations by email have dropped for both credit cards and personal loans, according to market-research firm Competiscan. AmEx, Bank of America and JPMorgan have sent almost no card solicitations in more than a week.

The changes could be most painful for low-wage workers such as wait staff and hotel employees uncertain when their next paycheck will arrive. Some lenders say they have noticed consumers applying for credit at several financial institutions at around the same time, a sign that consumers are reaching for credit lifelines while they can still get them.

To make matters worse, many Americans were already overstretched before the pandemic, tapping credit cards, auto loans and student loans as costs soared over the past decade but incomes largely failed to keep pace.

LendingClub Corp., US:LC an online lender that is one of the largest providers of personal loans, said last week it would approve fewer loans from first-time applicants, require more verification of income and employment status and reduce approval rates to "higher-risk borrower populations."

Small-business lenders also are getting stingier with credit. On Deck recently stopped making new loans to movie theaters, hotels and nightclubs. It also made other changes to "significantly tighten underwriting standards," the company said in a regulatory filing Monday.

Square Capital, the lending arm of the payments processor run by Jack Dorsey, made loan offers to some small-business customers earlier this month but then didn't fund them when customers tried to activate them in recent days.

A Square Capital spokeswoman said loan offers are expiring sooner in light of more recent data the lender gleans from processing customers' payments.

At AmEx, many salespeople tasked with calling small businesses to offer cards have been told to stand down, according to people familiar with the matter. The company also has reduced its number of loan offers to small businesses.

Lenders that make loans to subprime borrowers are particularly tightening standards. Capital One and Santander Consumer are lowering approval rates for applicants who have only the minimum required credit score or close to it, according to people familiar with the matter.

Synchrony Financial US:SYF which specializes in store credit cards, is also tweaking underwriting standards for new card applicants, according to people familiar with the matter.

Some lenders also are discussing whether they should lower spending limits on cards that consumers haven't used in a long time. They worry that consumers will pull out cards they have abandoned in drawers and use them to buy items they otherwise can't afford.

An expanded version of this story appears on WSJ.com.

What the federal coronavirus relief bill means for mortgages, credit and 401(k) loans - AZCentral

Posted: 19 Apr 2020 08:15 AM PDT

CLOSE

The coronavirus outbreak and resulting economic slowdown have increased financial stress and borrowing needs for many people. New loans might not be easy to obtain, especially if your employment income has dropped, but relief is available.

The recently enacted CARES Act, which also is providing stimulus payments and small-business incentives, addresses credit needs and borrowing in various ways. Here are some of the key provisions tied to loans:

Mortgage relief possible

The Coronavirus Aid, Relief, and Economic Security Act provides several levels of relief to home-loan borrowers, including the right to request two periods of mortgage-payment forbearance or suspensions totaling up to 360 days.

"No additional fees, interest or penalties can be assessed for the forbearance," said the National Association of Realtors in a report, though regular interest can still accrue.

This provision applies to borrowers with government-backed mortgages such as those insured by Fannie Mae, Freddie Mac, HUD and the Veterans Administration. People with mortgages held by other lenders should contact those companies if they're seeking assistance. Many banks and other lenders also are suspending payments or offering other help, at least on a case-by-case basis.

Keep in mind that any deferred payments still need to be made eventually, as a lump sum or tacked onto the end of your mortgage, warned AARP. "Forbearance is not the same as loan forgiveness," the group said.

The CARES Act also prohibits foreclosures for 60 days from March 18, except for abandoned or vacant properties. And owners of multifamily properties who were current with payments on their federally backed mortgages as of Feb. 1 may request payment forbearance for 30 days, with extensions that can total another 90 days.

"Borrowers receiving the forbearance may not evict or charge late fees to tenants" during this period, the NAR said. Many states, including Arizona, also have implemented their own eviction postponements.

Homeowners able to refinance mortgages in the coming weeks or months could enjoy nice savings, thanks to rock-bottom levels of interest rates. According to an example provided by Lending Tree, borrowers today could save nearly $60 per month — or about $700 a year in payments — for every $100,000 borrowed, compared to a year ago, when interest rates were about one percentage point higher.

However, high demand for loans and tighter underwriting standards could delay or derail the refinancing process for some applicants.

Many borrowers "may need a higher credit score, perhaps a lower debt-to-income ratio, and a larger down payment," said Bankrate.com in a commentary. "If you want a new mortgage or refinance, it's going to take a fair amount of patience and shopping to get the best rate."

Some help on credit scores

Another provision of the CARES Act provides potential leniency for consumers facing borrowing and credit pressures and who are able to work out a new payment plan with their credit-card companies or other lenders.

The provision temporarily amends the Fair Credit Reporting Act with a helpful rule for consumers who receive an "accommodation" or concession from their lender. Assuming the lender agrees to a new payback plan and the consumer sticks with it, the CARES Act instructs the company to report the person's transactions as remaining satisfactory or "current."

"If you experience financial hardship due to the coronavirus outbreak, if you enter into a hardship provision with the lender, abide by the terms and make payments, then the credit card company won't provide negative information to the credit-reporting agencies," said Sara Rathner, a credit card expert at NerdWallet.

This credit-reporting provision will remain in force for 120 days after enactment of the CARES Act on March 27 or 120 days after the national coronavirus emergency is declared over, whichever occurs later.

But while an easier payment schedule with no credit damage might sound like a good deal, Rathner cautions against seeking an accommodation except as a last resort. Borrowers could face restrictions such as having their credit use frozen or seeing their accounts continue to accrue interest, even if payments have been suspended.

Before reaching out to your credit card company or other lender, take a close look at your budget to see if you can free up cash that can be applied to card payments or other debt, Rathner suggests.

If you do decide to call your lender to see what types of arrangements can be made, take notes of your conversations with customer-service representatives, she advises, and get a written acknowledgement of the terms of any new deal.

"We'll see a lot of people struggle financially (well after the health emergency abates)," Rathner said. These pressures could affect the credit scores and financial security of millions of Americans for years to come.

401(k) flexibility not a given

For many people affected by the coronavirus disruption, borrowing money from a 401(k)-style plan could be enticing. These loans have many advantages. For example, there's no lengthy application or approval process, the interest you pay goes back into your account and there's often flexibility in terms of repaying the money.

The new CARES Act increases the potential size of loans from 401(k)-style plans to a maximum of $100,000 from $50,000 before. But this increase isn't automatic — employers must adopt these changes, and many companies are dragging their feet.

Of 152 employers surveyed by the Plan Sponsor Council of America in early April, 47% said they were still deciding which CARES Act provisions, if any, to implement, with smaller employers most reluctant to make changes.

"Employers are being forced to make difficult decisions between business needs and what is in the long-term best interest of their participants," said Hattie Greenan, director of research at the Plan Sponsor Council. "They want to provide immediate relief to employees directly impacted by COVID-19 but are also thoughtfully considering the impact on their employees' long-term financial stability and ability to retire."

Employers so far are more receptive to letting employees tap into their accounts by making withdrawals rather than increasing loan amounts. Some 45% of employer respondents to the survey said they have or plan to adopt the CARES Act distribution provisions, compared to 32% who said they have or will embrace higher loan amounts.

The CARES Act distribution provisions allow workers to withdraw up to 100% of their vested account balance or $100,000, whichever is less, without facing a possible 10% penalty, with the option of repaying the money over three years to delay paying taxes on it. That's one provision that employers must decide whether to adopt and so is a provision allowing workers to suspend loan payments otherwise due in 2020.

About 9% of plan sponsors say they don't plan to adopt any of the CARES Act withdrawal or loan provisions, and other companies will implement only some of them, so it's important for workers to check details on their plans.

All this is in addition to other possible changes to 401(k) plans not addressed by the CARES Act, such as potential reductions in the amount of matching funds that employers contribute or suspension of matching funds entirely. Some employers already are cutting these benefits.

Reach Wiles at russ.wiles@arizonarepublic.com.

Coronavirus in Arizona

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Michigan small businesses rocked by coronavirus turn to Congress for help - Bridge Michigan

Posted: 17 Apr 2020 03:32 PM PDT

The lights are off at Sun and Snow Sports in Plymouth. So is the heat. Orders for summer inventory are canceled.

But none of that changes the math for co-owner Rob Parent.

With $25,000 per month owed in rent and no sales since Michigan's March 24 stay-home order, the swim and ski retailer can't pay its bills.

"The really difficult things are the fixed costs," said Parent, who also operates a store in Ann Arbor and a warehouse.  "You can't scale that back, and we have zero revenue coming in right now."

Parent is among the thousands of Michigan business owners who hoped two federal stimulus loan programs would help bridge the time between their temporary shutdown and a return to generating revenue.

Instead, the programs ran out of money. Now business leaders and small business owners like Parent are turning to Congress, asking for more funding for both the $349 billion Paycheck Protection Program (PPP) and the $380 billion Economic Injury Disaster Loan (EIDL) program. The federal efforts were announced after the coronavirus prompted closures of non-essential businesses nationwide. However, by April 16, PPP was depleted, and applications were halted for the loan program.

Restoring the Paycheck Protection Program is now a priority for dozens of groups that represent small businesses in Michigan. In all, Michigan had  873,722 small businesses in 2019 that employed 1.9 million, according to data from the federal government.

"This matter cannot wait," according to a letter sent April 16 to Michigan's congressional delegation from the Michigan Chamber of Commerce and 33 other state business associations. 

"We urge swift congressional action," the letter continues, "including program enhancements and additional funding so the business community and financial institutions can continue to distribute these desperately needed dollars to small businesses, which form the economic core of our communities. "

Congressional leaders said they are exploring a $250 billion expansion of the PPP program, which offers forgivable loans if the money is used for payroll and an interest rate of 1 percent on the rest. Employers with fewer than 500 employers were eligible.

Congress will be back in session on May 4, prompting the requests for immediate help. However, bipartisan negotiations will take place this weekend.

U.S. Sen. Debbie Stabenow, D-Michigan, said during a televised town hall on April 16 that adding new funding to the program is a priority. 

"I'm confident that we will be able to get that done," she said. "We want to make sure everyone in Michigan is being supported with this."

Emergency federal stimulus funding seemed like a lifeline for the nation's struggling small businesses when it launched April 3. According to the Small Business Administration, 1.66 million applications for PPP were approved, and a total of $349 billion in loans have been made by 4,975 lending institutions.

In Michigan, over 25,000 loans were approved with at least $8.5 billion in approved dollars, according to the Michigan Chamber. 

Interest in the program was immediate among University Bank customers, said Stephen Lange Ranzini, president of the Ann Arbor-based bank. Loan officers there wrote $9.2 million in applications, Ranzini said, with $7.75 million approved. Another $1.4 million were in process when the funding ran dry.

Fourteen businesses had been approved by the bank, but couldn't get into the SBA system in time to get funding, Ranzini said.

"Our staff literally were trying to log into [the system] around the clock including at 3 a.m. and 4 a.m. in the middle of the night to see if we could get through the SBA's overloaded system when demand was lower, and still had a tough time doing so," Ranzini said.

That situation played out at other banks in Michigan as customers hoped their applications would lead to funding. Among the University Bank customers seeking help: restaurants, a fitness center and high-tech research and development. 

Meegan Holland, spokesperson of the Michigan Retailers Association, said the situation is frustrating for retailers, many of whom face paying both fixed costs and covering bills for inventory, ordered to fill stores considered non-essential under the stay-at-home order.

One store owner, Holland said, told her she is using a credit card "to pay for inventory that she ordered for spring/summer and can't sell to pay the bills."

Parent said he and Heidi Parent, his wife and Sun and Snow co-owner, now qualify for unemployment under broadened guidelines that allow self-employed people to apply. That, he said, will help.

The couple is preparing for an 18-month shutdown, and hoping that's not the case. So far, their summer swim business is looking questionable as clubs cancel their competitive seasons. Looking ahead to winter sports makes him more optimistic, but that means several  months during which regular customers won't need skis or boots. 

Getting stimulus funds remains a hope, he said. Learning that his application through Northstar Bank didn't make it through the system, Parent said, "rocked me pretty hard."

He continued: "It brought us peace of mind, knowing we were doing the steps necessary.We were told to sit and wait. So we did."

As a seasonal business, Sun and Snow employs 15 to 25 people. So far, all qualify for unemployment, Parent said. But if federal emergency funding reaches him, he'll hire a few back to work on the store's website. And he'll pay the rent.

"I just hope they can come up with a solution soon enough," he said.

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