April 21, 2020
It’s been about a week since the first round of the SBA’s Paycheck Protection Program ran out of funding. For prospective borrowers like Underdog.io, the process of applying for a PPP loan was maddening. I’ve been working with our bank and a handful of other lenders for a few weeks, and from what I’ve seen, there’s no shortage of blame to go around.
While the government deserves credit for spinning up the PPP so quickly, they didn’t provide enough guidance to make lenders feel comfortable with the program in its infancy. The SBA also signaled disorganization by making last-minute changes to PPP loan terms, including doubling the interest rate from 50 to 100 basis points the night before the program launched. This uncertainty pushed out the timeline on getting money into the hands of SMBs and led to business closures that the government could otherwise have forestalled.
Lenders, for their part, were understaffed and ill-prepared to manage the massive influx of loan applications. I spent hours calling and emailing banks to try to understand where we stood in their process, but to no avail. To combat the deluge of applications, many banks only accepted loan applications from existing customers. Others prioritized loans based on company size and expected processing fee revenue rather than handling applications on a first-come, first-served basis. By the time the application pool had opened up to the rest of us, most of the PPP funds had been allocated. In our case, I have no idea whether we’ll get PPP funding even though the bank approved our loan by email more than five days ago.
With the SBA guaranteeing these loans, it’s not clear to me why banks needed to be involved in the process of “approving” SMBs in the first place. I would imagine that the post-loan audit for all PPP borrowers will be exhaustive enough to catch blatant cases of fraud. Banks could have focused their energy on that step instead of constraining the system with manual compliance reviews. I’m not even sure that banks were the fastest way to inject money into SMBs in the first place. Anecdotally, money for approved PPP borrowers still seems to flowing at a trickle. P2P and other nonbank lenders would have been a faster solution, and speed matters a lot for SMBs right now.