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The Payroll Protection Program is absolute chaos. But today it is our best shot at getting SMBs the capital they need to survive. SMB, and by extension the country, NEEDS it to work. Here are some bits of news and things I learned today about PPP... (1/n)
2) First and foremost, @marcorubio has been absolutely nailing this. This is the first time in forever where I’m like “Yes, Marco! You got this! Amen!” Read this thread from two days ago for some insight into what went wrong with the PPP launch on April 3 https://twitter.com/marcorubio/status/1246396179744731136?s=20
3) Today SBA’s E-Tran system went down for hours. E-Tran is a piece of garbage, antiquated software that every SBA lender uses to upload information for any SBA application.
4) It is the front end for a huge SBA ledger of customers and source of truth that an applicant is eligible for an SBA loan, or in this case, PPP. By uploading applications to E-Tran, lenders are essentially reserving a loan for an applicant, and blocking out other lenders.
5) Once this information is uploaded through E-Tran, a loan number, “PLP”, is issued and forever associated with that specific application. After a bank successfully “pulls PLP” via E-Tran, they’re able to close the loan and issue the funds.
6) Anyway, E-Tran went down for multiple hours today, and banks could not complete this necessary part of the process for submitting. It was down for every bank we spoke with. It needs to get fixed and the load that it’s getting hit with is only going to grow as more banks do PPP
7) And once again, I find myself agreeing with @marcorubio. See, crises truly can bring people together! https://twitter.com/marcorubio/status/1247290964244344833?s=20
8) When we hear numbers like $22bn of issued funds, I’d bet the house that this is the number that has been submitted into E-Tran and NOT the amount of funds that have been loaned to SMBs. We haven’t heard of a single SMB having received their PPP loan yet...
9) I also have a hunch that there will be very real issues with this process. A bank is supposed to review all documentation and “pre-approve” a loan before submitting to E-Tran.
10) But given the amount of demand and mad dash to get it funded (because let’s face it, big banks can make a killing here in the origination fees they collect), I predict most large banks won’t diligence the file before submitting to E-Tran.
11) Why? It takes an inordinate amount of effort (humans are involved). There’s huge pressure from every angle to just submit and fund - the whole point is to inject money into the economy NOW. And there’s a lot of money on the table.
12) So what will inevitably occur is another bottleneck post-E-Tran where banks then decide that after a loan is “approved” they will need to review all the documentation, dot the i’s, cross the t’s, etc.
13) And that’s where tough conversations and bottlenecks will occur. Customers will be told “No” after being approved. They’ll be asked for more documents. They’ll have their loan amounts adjusted.
14) Or they’ll never hear back from a bank for a long long while because it’s just too expensive to follow up right now. I know this is a pretty dark assumption and I REALLY hope I am wrong, but watch out for this. I expect a lot of “approved” loans to never see the light of day.
15) I also think this is the case because @fundera, I’d say around 75-90% of the applications we receive need some form of correction - a missing piece of documentation, the wrong documentation, an incorrect payroll calculation, etc.
16) Treasury and the SBA did not make this easy with their guidance, and it’s going to create a lot of inefficiencies when it comes to simply packaging these loan applications on the frontend of this whole process.
17) On a separate note, the thing the banks we speak with are most concerned about is having enough capital on their balance sheets to lend and meet demand (they don’t have enough money, especially community banks).
18) The @federalreserve made an announcement today that they would either help to finance PPP loans, or buy PPP loans so these banks can recycle capital and fund the SMBs who need it https://www.wsj.com/articles/fed-preparing-to-purchase-new-small-business-payroll-loans-11586194588
19) There’s a @marcorubio tweet for everything. The impression I am getting from my bank conversations is this is directionally good news, but far too vague to action. Will they lend to banks? Will they buy the loans? https://twitter.com/marcorubio/status/1247290962348515330?s=20
20) The overwhelming preference (and IMO best solutions) is for them to buy the loans off their balance sheet as frequently as possible so the cash can be recycled to more SMBs.
21) More things I am seeing...almost every bank is prioritizing its own depository customer base. It makes sense. There’s unlimited demand for these loans, so banks want to provide preference to their own customers.
22) Some banks have already started to play favorites (e.g. only lend to SMBs with outstanding debt with the bank) to mitigate risk/exposure - see the BoA debacle (go Amy Elias @ProfilesBmore!).
23) IMO other banks will play favorites and provide the best service to customers with the highest payroll (i.e. the most profitable). The program incentivizes this behavior, and customers will never know this is happening.
24) Today I lost count of how many business owners I talked to that got locked out of Wells Fargo because of their $10B cap (Funded? Processed? Submitted to E-Tran?), haven’t heard back from Chase, or have submitted an application into the ether and have zero status visibility.
25) They can’t get ahold of anyone and this is just an abysmally shitty customer experience for SMBs in this anxiety-riddled time of need. But IDK an amazing solution for it given the fact that no bank was built to support this demand...
26) or to provide the level of excellent customer service/support that’s necessary today. A lot of business owners are simply going to have to be patient and scrappy, as uncomfortable and impossibly difficult as that may be.
27) One thing I have encouraged some of these customers to do is 1) obviously come to @fundera to see how we can help, but 2) talk to their local community bank.
28) I have heard of some edge cases where community banks are really leaning into this and making an aggressive play to acquire customers. They’ll say, “You don’t bank here but I’ll give you a PPP loan and move it into an account you open here. And move your deposits here.”
29) If I ran a community bank I’d do this. It’s times like this where you realize how hard it is to develop a connection with a big bank. And SMBs need connection, advice and service now more than ever. So SMBs, check out your community bank.
30) See if they’re doing PPP, and see if they’ll bend the rules and lend to you if you open an account and move some money over to them. Support your community, and have your community support you.
31) I’ll update this frequently with all the things we’re learning about PPP, and some explainers about how all of this works. Hope it’s helpful. For more information and news you can follow along @fundera. Good night! https://www.fundera.com/coronavirus-small-business-resources
