Business woman staring at laptop anxiously

With great urgency and speed, Congress and the Administration passed a $2 trillion coronavirus stimulus bill (CARES Act).

It includes about $350 billion in SBA backed loans and among other programs incentivizes businesses to keep employees on their payroll by offering to forgive that portion of the loan.

This provision is known as the Paycheck Protection Plan and is a vital piece of the legislation to stabilize small businesses and the economy.

Some of the SBA stimulus loans are funded directly by the U.S. Treasury, but most will have to go through the normal process of using an SBA approved financial institution that will process the application and service the loan.

For business owners not familiar with the SBA loan process, the government guarantees the loans. Banks actually lend the money and borrowers pay back the financial institution, just like credit cards or other consumer and business loans.

The catch with the Payroll Protection Plan loans is that they must go through a financial institution and banks must be ready to process the loans. Here is where the problem lies.

Banks Just Received The Guidance on Stimulus Package Loans

Because the stimulus bill passed just a week ago, financial institutions received the final guidance from the government late Thursday. This gives banks virtually no time to get ready to accept loan applications and process them.

“Financial institutions like ours are still awaiting guidance from the SBA and the U.S. Treasury,” Chase Bank said in an email to business customers, discussing the SBA loans. “As a result, Chase will most likely not be able to start accepting applications on Friday, April 3rd, as we had hoped.”

Furthermore, it is unclear how quickly and easily the SBA can handle the underwriting process of the loans. Without approval from the SBA, financial institutions cannot pay out the loan.

In 2018, the SBA guaranteed about $30 billion in small business loans, a fraction of the volume the agency will have manage when the floodgates open up today.

“We’re now hearing from bankers that they may not want to get into the program because the law doesn’t have a whole lot of specifics in it, yet the phone lines are jammed with business owners begging for loan applications. [Banks] don’t know what the rules are, and they’re afraid if they lend money to someone they shouldn’t have, they’ll be required to pay it back to the government.”

James Brower, a partner at Marks Paneth, a New York City-based accounting firm to NBC News

Choice of Bank Could Be Crucial

The problem business owners may have to consider is the choice of bank and their experience dealing with SBA loans.

Some banks, who have long worked with the SBA may be more comfortable to get going quickly, while others, maybe waiting on getting questions and details worked out.

A large sticking point for some institutions could be that they remember the financial crisis of 2008 when the industry was held accountable for billions of dollars in lawsuits and fines, following the rollout of the economic relief efforts back then.

Since the primary benefit of the Paycheck Protection Plan is to have that portion of the loan forgiven by the SBA, there are details that have to be followed for businesses to be eligible for that relief. No one wants to be wrong on this, as that could be costly.

While it seems trivial, an area of concern is in which format businesses have to provide payroll statements to be eligible for the loan forgiveness. There does not appear to be a uniform standard at the moment.

Most likely small businesses that use national payroll services will be in better shape versus businesses that do not use accounting software and may still hand-write checks.

Accounting and Bookkeeping Firms Overrun by Calls

This time of the year normally is very busy for accountants and bookkeeping firms as most small businesses must file their taxes by April 15.

But because of complexities in their returns or financial situations, many businesses would have filed the automatic tax-filing extension, enabling bookkeepers and accountants to manage and prioritize the seasonal workload.

That all changed this week, as suddenly, everyone needs their work done now so they can apply for SBA loans.

What is in the best of times barely manageable, became chaotic. With little warning, business owners need their financials done now so that they can apply for the SBA loans.

Is The Small Business Administration Ready?

Does anyone remember the rollout of Healthcare.gov, the first year of Obamacare? It wasn’t very smooth.

While comparing the two is a bit of comparing apples to oranges, the fact is that the government set this program up in record time. And, the SBA is looking at guaranteeing over 10x its typical annual volume of loans in a fraction of the time.

The White House says the SBA is ready, but the government is usually not very good at doing anything quickly, regardless of who is in charge.

“The potential for things to slow down would be in the way the verification and underlying requirements are on the bank. If it’s a very easy process with minimal underwriting, more like a credit card than a traditional loan, then things will operate a lot smoother. The longer the application process takes, there could be some delay. Not everyone will get a check tomorrow, but that doesn’t mean they won’t get one.”

Nick Simpson, head of public affairs for the Consumer Bankers Association to NBC News

New Challenges Require Patience

Add to this already difficult situation that many retail bank locations are closed (except for ATMs and Drive-Throughs) and may require appointments or complete the loan application over the phone; many accounting and bookkeeping firms have their staff work remotely to comply with local social distancing orders; no one really knows if the SBA is fully staffed for the same reason; there are a lot of unknowns going into today.

Unfortunately, the unprecedented speed at which this program is being rolled out will undoubtedly involve delays and frustrations. With all good intentions in mind, that is something business owners should expect.

Small business owners whose businesses were ordered shut or online sales have plummeted due to a drop in demand from the coronavirus (COVID-19) emergency, will need a lot of patience and understanding to get through the process.

Everyone wants to help, but this is a huge program to launch quickly and administrate. There will be snags.

Update 4/3/20 – 3 pm: We are hearing that some banks are not taking applications if the business or business owner did not have a previous credit card or other types of loans with them. Apparently, this is a temporary situation probably because it is easier for the banks to process SBA loan applications if they already have credit information on a customer.

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