The PPP/EIDL funding process upended the small business community these past few months as places scrambled to stay open — and solvent — during the COVID pandemic shutdowns and closures. Since March, Merchant Maverick has been paying attention to reader comments to try and put our finger on the pulse of the everyday business owners’ experiences.
In Early October, Treasury Secretary Steve Mnuchin said in a press release that the government provided 5.2 million PPP loans worth $525 billion to small businesses, which saved 51 million jobs. Congress also added another $20 billion to the Economic Injury Disaster Loans program and made the (up to) $10,000 advance forgivable.
Despite those numbers, the PPP and EIDL programs failed to give a lot of business owners the help they needed. What went wrong? Why were small businesses denied those funds? And what does the future look like in terms of government COVID aid?
Keep on reading to find out the top five reasons why small businesses missed out on government loans during the coronavirus pandemic.
1) Issuing Banks Failed Big Time
The first, and most challenging, hurdle for many small business owners involved problems with the actual banks issuing the loans. It’s important to understand that the Small Business Administration (SBA) itself does not directly lend money; it relies on partner banks and lenders to actually provide the cash. Instead, it smooths out the lending process by guaranteeing all or a portion of the loan, making the process less risky in general.
When the PPP and EIDL programs launched, partner banks were unprepared to deal with the volume of applicants.
- Banks were overrun with applications within hours
- Funds were depleted quickly
- Paperwork was filed too slowly, and without a good system for tracking applications
According to reader comments, Chase Bank and Bank of America, in particular, struggled with serious issues around applicants and applications. But in general, nothing about the rollout of the SBA loans was well-thought-out, and that left many banks scrambling to come up with their own internal policies amid confusion. The general chaos within the banking community meant that many business owners, even when filing applications correctly, missed out on their piece of the PPP or EIDL funds.
Our reader Naomi wrote:
This PPP is such a farce on so many levels. We applied early with Chase, tried to check on the status and was told that they aren’t in charge of approving the loans and don’t even have access to the applications. Essentially, they said that the applications automatically go directly to the SBA and the SBA reviews the applications. When we called the SBA, they told us the exact opposite: That the bank approves the applications and likely didn’t get to ours before the funds ran out — essentially that it was just sitting there for two weeks! … The process generally has just been unbelievably inequitable from the start and not transparent … Shame on the US Government.
Reader Kim replied to Naomi, writing:
Well said! I went through the same thing. Waiting, wondering, worrying… no answers, then BAM the money is gone. Then to hear Chase and the SBA gave millions to businesses that, no doubt, have countless resources at their disposal. Resources that actual small businesses wouldn’t even qualify for. Shame on Chase and shame on the SBA as well.
Chase Bank was not alone in its failure to handle the SBA disaster loans rollout. Bank of America also came under heavy scrutiny for the way they processed their loans, resulting in a lawsuit from four small businesses that allege Bank of America prioritized businesses needing larger loan amounts so they could maximize their own profits. Our Merchant Maverick readers experienced the same kind of forced delays in filing loan paperwork that are cited in the lawsuit.
Our reader Monica said, “Shame on you, Bank of America! All documentation submitted and confirmed. Then nothing! After 30 years as a small business banking customer, we are disgusted. Enjoy the $18 billion you will make while screwing your small business clients.”
The financial toll of COVID has affected all business owners, but it’s been particularly hard on those that provide essential services. Karen, a physical therapist and owner/founder of a clinic in Issaquah, Washington, wrote:
As an essential healthcare business, we’ve remained open and have been providing care to our critical needs patients and many front-line responders in the COVID-19 crisis. Located in King County, we’ve been struggling since the original outbreak in Kirkland, Washington only 6 miles away. We applied through Bank of America for the Payroll Protection Plan within three hours of the process opening online on April 3, 2020. We uploaded our supporting documents within four hours of the email request for them. As of today, we’ve had no response from BOA and can only assume we won’t be receiving any Federal assistance… I’m not sure what future opportunities may arise to fill this critical gap in funding for small businesses, but as a front-line health care provider, I certainly hope some priority will be given to businesses like ours.
Jocelyn, another physical therapist from Redmond, Washington, replied to Karen:
Like you, we applied for the PPP through Bank of America (our business bank for 21 years) on day one and did not end up getting any funds. All along the way, it seemed there were delays on their end. We would jump whenever they requested information, but then days would go by before we would get another email. Eventually, the money just ran out and we were out of luck. There is no one to give us any information. Now learning that BofA funded some larger businesses that used up millions instead of the small businesses like ours makes me really upset. I’m not optimistic about having any chance the second time around either.
2) SBA & Lender Technology Floundered
Another huge complaint about the PPP/EIDL process surrounded the major technology glitches that prevented people from navigating the application process with ease. Errors abounded, the most of common of which were:
- Small business owners never received log-in information
- Websites were overrun with traffic and timed out
- Applications failed to upload at all
- Users received error messages during the process and didn’t know how to proceed
- Applications were resubmitted due to website error and then flagged as suspicious
Even during the second round of funding, technology issues ran rampant. The SBA’s processing site experienced extreme slowing. In a comment to Fortune, the SBA said: “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. The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-Tran system. If a lender goes above the pacing limit they will get timed out.”
A handful of Merchant Maverick readers encountered a similar technology issue: Accidental flagging of potential duplicate applications. If computers timed-out and a small business resubmitted, there was a potential for a double-submission. Or in one reader’s situation, she submitted applications to two separate businesses but it was still flagged as a duplicate. Corina wrote, “I had to call and ask them to reinstate the main application for my larger business.”
A reader named Smith wrote:
Today, I received the following email with the subject line: Multiple SBA Economic Injury Disaster Loan Applications. ‘We received multiple applications from your business for economic injury as a result of Coronavirus (COVID-19). Your earliest application will continue to be processed and we have withdrawn [other] application number from active consideration.‘ Does this mean I’ve been denied? I only submitted one application.
Reader Anne wrote:
My business was initially declined because the system though I’d applied multiple times. Turned out it was because, in the system, my application showed the same numbers for my bank account and routing number. There were a number of people from my bank who made the same mistake when applying, so it showed multiple accounts applying for the loan — which were considered duplicates — when it was really multiple people applying who use the same bank. My guess is there’s a bug in the application software, but no use focusing on that to resolve.
Our reader Valerie ran into similar problems with her EIDL loan after receiving mixed messages from the bank. She wrote:
After I confirmed my identity and approved the amount, it wouldn’t let me review and sign the documents. I received an email saying I was approved for an amount and it gave me the option to select the maximum amount or a lower amount. I checked the [bank] online about 3 hours later, and now the status shows declined and they will email me with the details. I am so confused, because they emailed me and told me that I was approved.
3) The SBA Wasn’t Prepared
News agencies widely panned the rollout of the SBA disaster loans with a slew of adjectives, including chaotic, sloppy, bumpy, flawed, glitchy, messy. An article from NPR outlined many of the problems surrounding the program and some of the questions that small business owners still have about the funds. In general, users found that the SBA guidelines were too vague or they failed to answer questions in a timely manner. Phone lines went down — phone numbers that worked for some didn’t work for others. Misinformation and exhaustion reigned.
Merchant Maverick reader Micah captured the frustration many of our readers encountered during the EIDL process. He wrote, “[I] just received a denial email. After jumping through so many hoops and re-entering my bank info, they just decided to deny me.”
David wrote, “I got an email on 5/10 that my EIDL was being processed and created the account, gave verification and bank info… and today, I went to check on it and the status has gone from processing to DECLINED! It says I’ll get more info by email.. I was really counting on that money, especially when they said it was processing.”
Reader Hollie responded to David’s situation with her own experiences, writing that the same thing happened to her with her EIDL loan:
I got the email from the SBA saying congratulations your application is processing. It gave me a loan amount that I was approved for. I accepted the amount. Created the account, verified my identity, and put in my bank info… Then boom: Next day, Email saying I was denied. It also said it would send via email the reason for denial. Welp, that email never came. I’ve called and sent them emails asking what happened, but have yet to hear back. That was two weeks ago.
4) Unqualified Businesses Snatched Funding Not Meant For Them
Shake Shack. The Laker’s. Potbelly. A handful of successful hotel chains. When the funds were dispersed and the scrutiny started, small business owners who had been left out of the two rounds of funding were irate to learn that some businesses that didn’t seem to meet the criteria were walking away with the bulk of the resources. The backlash, however, prompted many of the larger companies to return the money.
Readers responded with frustration to the news that big businesses walked away with the money that small businesses had been promised. During the first round of PPP loans, reader Lee wrote:
Our government has scammed us. I applied to Chase for an SBA loan during the first week. Our banker walked us through it. A few days later, he finally answered, after texting and calling him constantly. He said the program ran out of money, so our application was in the queue for the next release. Then, today, I heard that Shake Shack got $10 million! They have way over 500 employees. I can’t wait until November.
Reader MC shared a similar sentiment:
I understand that the PPP came with no user manual and is extremely confusing. But it doesn’t excuse some blatant and grotesque approvals of loans to filthy-rich businesses. Take the Los Angeles Lakers as an example. They were approved for $4.6 million although their estimated value is $3.7 billion! Why in the world did they apply in the first place? It’s truly, truly appalling.
Reader D. Hewett wrote:
I work financing small business loans. I’ve been working and following up nonstop on programs to try and help other business owners. I filed end of March… There is no place to check for your loan application. If small business owners don’t die of the coronavirus trying to get promised funds will kill them. Meanwhile, large, large corporations got millions of dollars while little small business owners are getting denied unemployment? No word on EIDL, denied or turned away from PPP. Haven’t received stimulus checks. I am one of those, and this shows me the ineptness of our government in every way from managing the coronavirus to disaster loan programs.
5) Simple User Error
Lastly, another common thread among the denied was good old-fashioned user error. Thanks to hugely mixed messaging, and confusing and conflicting information from banks and the SBA, the process wasn’t smooth to start with. Compounded with technology issues, many small business owners made simple mistakes in the application process that slowed down the process or precluded them from receiving funds at all.
Many readers reported being told to fix issues, only to have the money run out in the meantime. Others had their credit pulled (and their credit score affected by the pull), but suffered from small errors that prevented their applications from fully going through. Faulty log-ins, wrong bank information, missing information — all of those things contributed to loan failure. One reader was frustrated when she accidentally entered zero on her loan amount and was unable to receive help from the SBA to correct the amount.
Some small businesses that were denied because of error were allowed to submit reconsideration letters, although it is unclear how many of those went on to receive funds.
The Future Of Government Aid During COVID
As this article goes to press, more COVID relief is being discussed, but there is no further news about the government’s plans for the small businesses still in need of aid. With the November presidential election mere weeks away, it is apparent that COVID aid is an election issue and a government bargaining chip. However, while Federal aid may be in limbo, small business owners may also want to check out other forms of funding, including what their local governments are offering in terms of grants — as many state, county, and city governments are dispersing funds from the CARES Act to local businesses.
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