In response to the economic devastation created by the COVID-19 crisis, Congress created the Paycheck Protection Program (“PPP”) as part of the CARES Act. The PPP provides extremely low-cost loans, which will be forgiven if a qualifying applicant spends the proceeds on payroll and a few other items. In the few weeks since the CARES Act has passed, a number of law firms who appear to qualify for its relief are still waiting for a response to their applications. While firms should seek out advice from all appropriate professions as they pursue support under the PPP, we set out here to offer several points that we’ve learned about the program.
Tip One: Be Careful Selecting Your Bank
Under the terms of the CARES Act, any qualifying small business (or qualifying non-profit) should have been able to apply through its FDIC-insured bank and there is no requirement for collateral, a credit check or the traditional trappings of a business loan. But it’s proving to be a little more complicated than that as banks set their own individual guidelines. Not all banks are proving equal in this crisis. Many larger banks have refused to accept applications from some businesses. This link on the SBA website provides a list of currently approved to file PPP loans: https://www.sba.gov/paycheckprotection/find.
Experts also advise businesses to contact their local Small Business Development Center, Women’s Business Center, or SCORE, which all include experts who provide free guidance via phone and email. You can also search for lenders at https://smartasset.com/insights/ppp-loan-lenders and it identifies whether the lenders accept applications from non-customers.
We have heard from a number of firms that have had better experiences with small lenders. They are far more likely to accept loan applications regardless of whether you have existing business with them. The smaller lenders not only submitted and gained approval from the SBA much more quickly, but have already delivered the proceeds of the loan in most cases. In many cases, it has been very hard for firms applying for PPP to reach a human being at larger banks.
Tip Two: Ask Whether Your Application Was Actually Submitted to the SBA
It is apparent that some lenders have accepted applications, but have not actually submitted them to the SBA for funding. We have learned of situations where applicants were given assurances both verbally and in writing that the application was “complete” or “accepted,” but later learned that the application had not been actually submitted to the SBA and accepted.
We are aware of instances of this occurring even where the application was submitted on April 3rd, the first day that applications were accepted. More precise questioning can help to determine if you are caught in this trap. You can inquire directly to your lender whether the loan application has been actually submitted to the SBA and whether the SBA provided funding confirmation. The SBA provides an instantaneous response to properly submitted PPP applications in most cases and your lender should be able to provide that to you.
This can be happening for a variety of reasons, some more nefarious than others. Part of the problem seems to be that there is relatively little economic incentive for a lender to submit a PPP loan. The lender receives only one percentage point on the loan and the good will value of customer service. At the innocent end of the continuum, some lenders have lacked enough portals to the submissions process, making it practically difficult for them to process loans in a timely manner.
There are other lenders, though, who created their own issues by imposing lender specific requirements. According to one Maryland federal court interpreting the CARES act in a case against Bank of America, this is permissible. Still other lenders appear to have accepted applications but have no intention of submitting applications to the SBA for their own business reasons. They likely accepted the applications initially because the lender wanted to appear to be serving its business customers out of fear those business clients would migrate to another banking institution.
Tip Three: Explore Multiple Possibilities
Because this is a moving target, a few experts suggest filing applications with more than one lender, so that you have a better chance you have of seeing some movement with at least one of them. This is tricky, however, as you cannot actually end up submitting more than one actual application to the Small Business Administration. With the worry about funding running out and some lenders changing priorities, it still makes sense to inquire with several lenders. This is simply a strategy to see who can fund you faster. (Ask for institutions to contact you before submitting for approval, so you can make sure you do not accidentally apply for multiple loans, which would be fraud under the PPP Loans provisions.)
In addition to the list of lenders listed above on the SBA website, several Fintech companies like PayPal, Intuit and Square have all been approved to participate in the PPP program as well. It appears that their processing time is much faster because their business model and processes are built for speed.
Tip Four: Move Quickly!
The reason for the urgency is that the $349 billion is clearly inadequate for the magnitude of need in the American small business community and is running out quickly. The Florida Banker’s Association reported yesterday that they believe the existing funds would all be gone by today or tomorrow at the latest. Lawmakers are pushing for more funds but it hasn’t happened yet.
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