Commentary: Poor guidelines left some small businesses out of COVID-19 loan program

Commentary: Poor guidelines left some small businesses out of COVID-19 loan program

Charleston Post & Courier, April 18, 2020
Daniel Island News, April 20, 2020
The Augusta Chronicle, April 22, 2020

By Frank Knapp Jr.

The $349 billion Paycheck Protection Program ran out of money for small business loans on Thursday.

The good news is that nearly 23,000 of these 100% government-backed loans were approved in South Carolina and more than 1.66 million nationwide.

Unfortunately, tens of thousands of small businesses in our state and millions across the country were unable to get a loan. And these businesses were painfully aware of the reason.

The PPP loans were never “first come, first served” even though that was how the Small Business Administration and Treasury Department promoted them.

Instead, success in obtaining a loan depended more on the financial institution of the small business, how interested the loan processor was in making the loan and who the small business owner knew.

For example, my family owns a service business with eight employees. On April 2, the day before the PPP loans were to be made available, we were told by our bank of 20 years that it would not be making those loans. Other banks were pursued to handle the PPP loan application. However, the response was that they were only working with businesses that had previous commercial accounts with them.

Then there is this experience. A husband and wife in our state each has a business. The husband, who serves on the Board of the South Carolina Small Business Chamber of Commerce, owns a successful small manufacturing/retail store. His wife owns a six-employee, 10-year-old personal service business. Both use the same bank. She applied for a PPP loan before her husband did. But her application was never processed by the bank, which insisted that she provide a 2019 tax return that is not due until this July. Her husband’s loan application went though the process successfully even though he was not required to provide a 2019 tax return.

A CPA friend of mine tells me of her experience trying to help one of her small business clients with a PPP loan. After days of frustration with the client’s bank, she was asked by another bank to quickly provide her CPA services to help one of its business customers with a loan. After she was done helping, she asked the bank if it would work with her business client who was being stonewalled by his bank. They agreed, processed the loan and the SBA approved it in less than three hours.

The frustration of millions of small businesses that tried but failed to get PPP loans is actually not the fault of private lenders. Banks and other financial institutions have a vested interest in serving their most valued customers, making loans that have minimum risk and taking care of influential friends.

The fault for the frustration of millions of small businesses with the PPP loan process lies with the SBA and Treasury Department, both of which seemed to be oblivious to how private financial institutions operated.

Most of us knew that the inadequate guidelines the federal government gave for processing the loans would not result in “first come, first served.”

However, there is now time to correct this problem when Congress approves more funds for the PPP small business loans.

If Congress and the Trump administration truly want these loans to be “first come, first served,” then the guidelines for the private lenders should require the participating financial institution to: 1) accept loan applications from all small businesses, not just existing customers, 2) have only one queue for applicants and assign a number for queue position that the business can follow online, 3) require the same documentation from every business applying for a loan, and 4) have no minimal loan amount.

Should the financial institution fight these “first come, first served” guidelines, Congress should take the billions that would be given to private lenders for processing the PPP loans and put those funds with the SBA to enable it to make the loans directly, probably the way it should have been done at the start.

Frank Knapp Jr. is president and CEO of the South Carolina Small Business Chamber of Commerce.

https://www.postandcourier.com/health/covid19/commentary-poor-guidelines-left-some-small-businesses-out-of-covid-19-loan-program/article_6b3df79e-8027-11ea-808e-3b2b109d07b6.html

http://thedanielislandnews.com/opinions/poor-guidelines-left-some-small-businesses-out-covid-19-loan-program

https://www.augustachronicle.com/news/20200422/poor-guidelines-left-some-small-businesses-out-of-covid-19-loan-program