Hectic Start to Paycheck Protection Program Calms with Time

YOUNGSTOWN, Ohio – With $349 billion at stake and just a week to put a system in place to disburse what businesses across the nation saw as free money, there were bound to be hiccups in launching the Paycheck Protection Program.  

The initial application was published for the first time the evening of April 2, the night before applications would be accepted by the U.S. Small Business Administration. Accountants and bankers received guidance over the following days, some of which forced applications to be changed. Some large banks were said to be setting priorities for existing borrowers who submitted applications over those coming in for the first time. On April 6, the first full business day after the SBA’s E-Tran online application portal opened, the system crashed after an avalanche of submissions.  

But, with each day, the system became clearer, accountants and bankers say.  

“I went from receiving hundreds of calls and emails a day to something substantially less,” says Frank Turocy, a senior manager at HBK CPAs & Consultants, Canfield, who’s served as an internal and external adviser for the Paycheck Protection Program. “There’s either progress toward clarity or people have applied and it’s now a waiting game. It was the Wild West for a couple of days. Everyone was flying around, but now it seems like it’s calmed down at the consumer level.” 

As of April 9, the SBA said it had issued 550,000 loan numbers with funding totaling $140 billion. By April 14, that number had risen to 959,000 approvals totaling $232 billion, according to the Associated Press. 

“This program had to roll out quickly. To devise a program to get $349 billion to small businesses was a herculean task,” says Mark Witmer, chief banking officer for Farmers National Bank, Canfield. “While there’s been some slowness in the system and confusion in directions, all in all we’ll fund our first loan probably [April 9]. We’ll get notes signed and funding done and money into the community.” 

The bank had submitted and gotten approval for about 150 applications totaling $50 million as of April 8, he said, with about 300 more applications in the pipeline. All staff in the credit and lending departments have been working on processing the applications, he says. 

“We’ve had our staff working from 5 in the morning to 10 at night Sunday through Wednesday because this is so important,” Witmer says. 

Huntington Bank received “an unprecedented volume of SBA [Paycheck Protection Program] applications” and has stopped accepting new applications in order to work through its backlog, a spokeswoman says. In total, applications filed with the bank in the first five days of the program requested more than $4 billion, with about $2 billion approved.  

“We will begin accepting applications again as soon as we can work through the enormous demand we have received and confirm that federal funding is available,” the spokeswoman says. 

At PNC, the bank had “tens of thousands” of applications submitted in the same time frame, a spokeswoman says, and applications will continue to be accepted. 

Likewise, Home Savings Bank saw “a very high interest level,” according to a spokeswoman. “This week we’ve received over 1,500 applications,” said Kathy Bushway April 10.  “Our team is working tirelessly to take care of our customers.” 

HBK’s Turocy says that because of the accounting firm’s size – 19 offices in four states – he lacked a count of how many applications had been submitted on behalf of clients, but he did note that none of his clients had received any loan funds as of April 9. 

“There’s a pyramid. There’s a significant amount that have applied at the bank level. Less than that, there’s a group where they’ve gotten some sort of approval from the SBA,” he says. “And there’s a handful of cases where I’ve heard they’ve actually gotten funding. None of those are attached to me or my clients, but I’ve heard of others.” 

Tim Petrey, managing partner at HD Davis CPAs, says his firm either submitted or helped with about 100 applications and had received four SBA loan numbers by April 8. 

“That means they’ve allocated those funds and there’s some additional work to verify that information, maybe get some more documentation, then they’ll finalize when it’s closed and when they’ll send the money,” he explains. 

The turnaround between application submission and a response, Petrey says, was much quicker than expected, about five days. 

“The applications we’ve gotten approval for are the ones we submitted Friday night [April 3]. The bulk of the applications that we did were done between Friday at 5 [p.m.] and Saturday around 7 in the morning,” he says. “I was expecting a couple of weeks because of the volume and because of my past interactions with the SBA. Normally, there’s a five-day turnaround for them to say they at least received something. For them to be punching out approval numbers was shocking to me.” 

Part of what’s fueling that accelerations, Farmers’ Witmer says, is the simplicity of the application itself.  

While the documentation needed to fill out the application can be extensive – and there were questions early on about how to calculate certain figures – it’s one page, with one said side focusing on the financials of a business and the other a series of “black and white” questions, Petrey says. 

“For the borrower to qualify, there are basic rules and a handful of questions to answer. There’s no collateral. It’s an unsecured loan. There’s no credit scoring. There’s very little required other than submitting your payroll records,” Witmer says.  

Once the bank has the application, the information is plugged into the SBA’s E-Tran portal and feedback on approval is almost immediate, he adds. 

The first few days of the process were the most hectic. By Petrey’s count, the application was changed three times and six guidances were issued. The broad strokes of the Paycheck Protection Program were the same – small businesses facing economic uncertainty because of the coronavirus could request funds up to 2 1/2 times their average monthly payroll – but the details were shifting. 

“At some points it was like going after moving targets,” HBK’s Turocy says, noting that one of the most common questions financial professionals had was in regard to the inclusion of employee payroll taxes.  

The final ruling, as answered in an 18-item frequently-asked-questions document posted by the Treasury Department April 8, is that the amounts taken out of workers’ checks for things like Social Security and Medicare do not count toward the figure used to calculate payroll costs. In an example Treasury used, a $4,000 wage with $500 in employee taxes removed can be counted as its full amount.  

“There was also clarification at what part of the calculation do you hit that $100,000 [income] limit,” Turocy says. “There was vague wording so you couldn’t tell if it was total compensation – the accumulation of their wages, benefits, health care, 401(k) – or if it was $100,000 in wages that then had those benefits added on top of it.” 

Petrey also notes that there were questions about the timeframe from which payroll costs could be calculated. As written in the Coronavirus Aid, Relief and Economic Security Act, the Paycheck Protection Program application requires the previous 12 months of payroll information. A guidance the SBA issued then changed that to the 2019 calendar year. 

“Some banks used 12 months and others used last year. From a documentation standpoint, that’s huge,” Petrey says, noting that most banks he’s dealt with are accepting either timeframe. “The first quarter of the year just ended and if businesses are doing this on their own, a lot of them don’t have the necessary reports to upload with their application.” 

For those unable to tap into the initial allotment of $349 billion, there is talk in Congress of adding $250 billion to the pool. On April 9, Senate Democrats stalled the bill, asking for protections for minority-owned businesses and money for health care providers and state and local governments. 

“One of the concerns that we have about the original $350 [billion] is that a lot of … people who are under-banked are unserved on that basis,” House Speaker Nancy Pelosi told NPR April 8. “So, they don’t have banking relationships sophisticated in a way that others do.” 

Countered Senate Majority Leader Mitch McConnell: “Nobody thinks this will be the Senate’s last word on COVID-19. We don’t have to do everything right now. … Let’s continue to work together, with speed and bipartisanship. We will get through this crisis together.” 

It’s likely that there will be some sort of expansion of the funds available, with just a question of how soon and if there are carve outs for particular sectors. 

“The rumors were out there that this would run out in two weeks and people wouldn’t get money. That caused a frantic rush,” Witmer says. “I was on the phone with the SBA and they made the assurance that there’s another $250 billion coming.”  

The process will build on what initially was established, rather than starting from the beginning. That means the guidances and rules the SBA and Treasury Department issued will remain in place, hopefully making the second round easier on businesses and financial professionals. 

“From the beginning, the rules on who qualifies have been straightforward. The rules we didn’t know were smaller details: what’s on the note, what are the terms of the loan? Those have all come out now,” Witmer says. “Every day that this goes on, we get more clarification.” 

Pictured: In the first week, Home Savings Bank received 1,500 Paycheck Protection Program applications.