As many as 650 of America’s biggest banks will be locked out of the government’s fast-dwindling small business rescue fund for eight hours on Wednesday evening, as the Small Business Administration prioritises applications from the country’s tiniest lenders.
SBA chief Jovita Carranza tweeted on Wednesday that the SBA would only accept applications from banks with less than $1bn of assets for a period from 4pm Eastern time “to assist small community lenders and ensure their small business customers have access to the #PaycheckProtectionProgram”.
The nation’s two largest lenders, JPMorgan Chase and Bank of America, have both made around 200,000 applications to the second round of the Paycheck Protection Program, which was launched on Monday and has around $310bn to dole out via the country’s almost 5,000 lenders.
Other big banks have also submitted tens of thousands of loan requests through a special facility that allowed them to batch applications together, triggering fears they would collectively exhaust a fund that bankers say is not nearly big enough to meet the demands of small businesses struggling as a result of coronavirus lockdowns.
After controversy around the first round of PPP funding, Congress had already carved out $60bn for banks with less than $50bn of assets, amid fears that big banks and their big clients would hoover up a disproportionate share of the cash. That threshold excluded fewer than 40 of the country’s lenders, according to data from the Federal Reserve.
There are around 3,800 banks with assets below $1bn that will continue to have uninterrupted access to funding.
The first $350bn tranche of PPP funding was exhausted in 12 days. The SBA said it had approved more than $90bn of grants for 960,000 loans in the second round of the programme as of 4pm on Wednesday, three days after its launch. Some 587,000 of those loans, totalling $43bn, were for applications made through banks with less than $10bn of assets.
Jason Hackett, the boss of an ad firm in Phoenix with eight employees who has been pursuing an application through Chase, said the eight-hour exclusion for his bank “really sucks”, since the PPP cash is quickly being used up.
“This action doesn’t penalise large banks, it penalises the small business clients of large banks who should have received a loan the first time, but didn’t,” he said.
“First we were squeezed out by large corporations,” he added. “Now we are being squeezed out by a government who isn’t thinking things through.”
PPP loans carry a very low interest rate and will be forgiven entirely in eight weeks if recipients show they have used the funds to cover employee payrolls and other essential business costs.
Big businesses including Shake Shack and Ruth’s Chris steakhouse received millions of dollars in the first round of the PPP, but many have said they will return the cash after public uproar. The US Treasury has promised extra scrutiny on all loans above $2m.
A person at one of the large banks said they were given no indication of the SBA’s plans to lock them out of the system, and that they had no idea how many of their many thousands of requests would be processed. “You can help more customers if you let the big banks through,” the person added. “This feels political.”
A spokesman for Bank of America said it continued to process applications in “expectation there will be enough funding for every small business that qualifies for this program”.
BofA submitted 184,000 applications through the SBA’s bulk facility on Sunday and another 48,000 through a more manual process, its business banking head Dean Athanasia told clients on Tuesday.