Has your small business been impacted by COVID-19 restrictions in your state? If so, you’re not alone. Many small businesses have to change the way they operate or close their doors completely during this time. While emergency loan programs and other no-to-low interest funding options have become available, some small business owners are struggling to receive the funding they need to pay their employees and keep their business running.
Are you also experiencing a delay when it comes to your COVID-19 emergency funding? Experts are saying that it may be because of your bank. Keep reading to see what payment industry professionals are saying about how your choice of bank affects when you’ll see the funding you need.
Table of Contents
- The Paycheck Protection Program
- Should You Pursue Your PPP Loan with a Smaller Bank?
- The Reasons Behind Funding Delays
The Paycheck Protection Program
First, let’s take a look at the government program that is providing the emergency funding. The Paycheck Protection Program (PPP) was launched on Friday, April 3rd, as part of the Coronavirus Aid, Relief, and Economic Security Act. This program includes $349 billion in funding through forgivable loans for small businesses and nonprofits. It is provided by the U.S. Small Business Administration to help businesses keep their workforce employed during the COVID-19 crisis.
Just a few days after the program was launched, 178,000 loan applications were being processed. Of course, this number is not representative of all the small business owners in the United States who desperately need funding. Some businesses were able to apply quickly. However, an issue of access for many others quickly became apparent after the program launched.
Many large banks, including Bank of America*, Chase, TD Bank, and Capital One, limited their pool of eligible loan applicants to their existing customers. That means business owners who did not have an existing line of credit or loan with these big banks were turned away. Other large banks such as Citi and Capital One did not open their applications right away, which caused further frustration and anxiety for many people.
The other issue that big banks are encountering is the sheer amount of applications and limited funding. For example, Wells Fargo has already stopped accepting any applications because they have hit the threshold of funds they can lend via the program. All of these problems are cause for concern because they could mean your small business is left behind by a national lender.
The good news is these problems are not going unnoticed. Officials are recognizing that access is an issue, and are working to expand it by adding new lenders. In addition, many regional and community banks are welcoming new clients. If you are a small business owner looking for funding, it is worth your time to contact community banks as potential options. To find out what institutions have been approved to participate in the Paycheck Protection Program in your area, click here to access the SBA's search tool.
*Bank of America has since updated its policy to allow checking account holders to apply in the wake of significant pushback from the public.
Should You Pursue Your PPP Loan with a Smaller Bank?
Now that you know some big banks are turning away small business owners who don’t already have accounts with them, you may want to contact a smaller bank. Regional and community banks are stepping up during this crisis to help small business owners like you stay in business. In fact, many business owners have found more success pursuing their PPP loan with a small bank than the national giants.
But, don’t just take our word for it.
In a recent Fox News segment, financial expert Charles Payne stated, “I’ve had several people who have told me that they successfully moved away from large banks that they were dealing with for a long time and opened accounts with community banks, who have been a lot more helpful and have actually got the process done for them.”
To view the segment, click here.
Part of the problem big banks are having is a supply and demand issue. The demand for small business loans is so astronomically high, that big banks don’t have enough money in supply. Not to mention, the issue of personnel there must be to review and process each loan. This is where smaller community banks can make up the difference. Because the demand on their business is typically less, their funding supply is able to keep up.
Next, we’ll explain a bit more about the reasons behind big bank delays.
The Reasons Behind Funding Delays
Especially if you’ve applied for one of these loans and are still waiting for your funding, you may be wondering, “What’s the hold up?” There are a few reasons why you may still be waiting for your money.
1. This situation is unprecedented.
You may be tired of hearing the word “unprecedented”, but it’s true. We have never experienced anything like this in our lifetime. The last pandemic of this size and severity was the 1918 influenza pandemic, which infected an estimated one-third of the world’s population. Just over 100 years later, we’re better equipped to cope with a crisis of this magnitude thanks to technology and societal advancement. However, that doesn’t make the situation less difficult for individuals and businesses.
2. The Paycheck Protection Program has too many unknowns.
For bankers, this program is fraught with unknowns right now. Because everything had to come together so quickly, the information banks need is being provided sporadically. And even then, it’s coming from many sources and lacks consistency. It’s causing anxiety for banks, who fear for the profitability of their own business. This anxiety and uncertainty is causing delays in loan payments.
3. Banks have limited funding available.
Most bankers are working under the assumption that they are to process and distribute PPP loans directly out of their capital reserves. This means they will carry the funds on their balance sheets until the government either forgives the loans, or the loan balances are paid off. Because banks have limited capital advance funding, the perceived amount of PPP loans they can process is also limited.
4. Banks need to protect their own business, while also helping yours.
Regardless of any government promises to increase PPP funding, big banks won’t accept new applications outside of their current funding allowance until they receive clarification and confirmation that more money is coming. Since the last recession in 2008, financial institutions have been conditioned never to do anything like what is being asked of them now under the PPP program. It’s hard to break these practices, as much as they want to help small businesses owners in need.
So, if you’re struggling to secure the emergency funding you need for your small business, reach out to your local community bank. They may be able to provide the support you need to keep your workforce employed.
Check out our other blog posts for more information and resources to help you through COVID-19.