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April 4, 2020, 3:48 p.m. EDT

Small-business owners express confusion, fear over federal bailout fund

There is widespread worry the Payment Protection Program will run out of money

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By Chris Matthews, MarketWatch


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Small Business Administrator, Jovita Carranza, flanked by President Trump and Treasury Secretary Mnuchin

The Trump administration spent much of Friday trumpeting the success of a new small-business lending program aimed at helping companies survive the economic fallout of the coronavirus epidemic, but small-business owners and nonprofit executives told MarketWatch their banks aren’t yet accepting applications.

They also said there was confusion and concern about the terms of the loan and whether it makes sense for their businesses to accept the money at all.

“The biggest concern right now is that banks don’t know how to administer the program,” said Dr. Christopher Russo, co-owner of Princeton Dental Partners in Princeton, New Jersey, who has spoken to two banks about getting the loans—one a major regional bank with which he has an existing lending relationship and another major, national bank. “The banks are overwhelmed,” he said, adding that his bank representative has said the bank is worried about liability issues and whether these loans will even be profitable to issue.

Dr. Russo said his bank opened for applications on Saturday, but the bank’s system for uploading necessary documentation wasn’t working, and it was difficult to get help from a representative. Meanwhile, his 13 employees remain furloughed, though his company is still paying for employee health care premiums, and he worries about fixed costs, like rent. “We are worried about running out of money at some point.”

He, like hundreds of thousands of small businesses across the country, is hoping to be approved for a Paycheck Protection Program loan through the Small Business Administration, which will provide small businesses loans to pay eight weeks of salary, benefits and other eligible costs. The loans will be forgiven if by June 30 a business restores its full-time employment and salary levels as of Feb. 15.

The Trump administration had to work quickly to launch this program over the past week and try to recruit banks to issue these loans starting Friday, for which they could only charge 1% interest. U.S. Treasury Secretary Steven Mnuchin advertised the success of the program on Twitter.

Many banks across the country, however, have still not begun approving loans, citing confusion over their responsibility in ensuring borrowers follow regulations, while others argue that 1% interest is too low to cover costs when the CARES Act that authorized the program allowed for rates of up to 4%.

“The Small Business Administration is currently developing regulations and guidelines for this program,” Citibank Inc . /zigman2/quotes/207741460/composite C -2.00% , advised clients on its website. “When received Citi and other lenders will be able to originate these loans and help clients with specific questions.”

“Citi is committed to helping small businesses gain access to emergency funds,” a Citi spokesman told MarketWatch. “We expect to begin accepting online loan applications as soon as possible.” The Small Business Administration did not immediately respond to a request for comment.

Walter Rowen, president and owner of Susquehanna Glass Co. in Columbia, Pennsylvania told MarketWatch that as of Friday afternoon, the large regional bank that he works with was not accepting applications, though he hopes they will on Monday. “Hopefully there will be enough money left that you didn’t have to be one of the very first to apply.”

Rowen remains optimistic that the program will ultimately benefit his business and the broader economy by keeping workers attached to their employers, but he said he hoped the program will be updated to extend the June 30 deadline. Retailers compose the majority of his clients, and he’s not sure they will need to be at full capacity by that date.

Meanwhile, interviewees complained of conflicting information coming from government sources, their bank representatives and lawyers as to what the conditions for forgiveness are. The loans will be not be forgiven automatically — business will have to apply and provide documentation proving that their expenses are legitimate.

According to Joanne Badr Morgan, attorney at Ward and Smith P.A., “In an effort to get these loan proceeds in the hands of American business owners immediately, the PPP loans are being issued before the SBA has had the opportunity to issue complete guidance on the loan forgiveness aspect of these loans”. Nevertheless, businesses are reluctant to wait until guidance is more clear, for fear that the $349 billion program runs out of money.

There is also fear among very small businesses that they will be left out in the cold if they don’t already have a lending relationship with a bank because banks are more willing to issue loans to companies they have already vetted.

“Most businesses don’t have existing relationships with banks,” said John Arensmeyer, founder and CEO of the Small Business Majority. “They have a checking account relationship, maybe a payroll relationship, but they don’t get loans,” he said, adding that very small companies typically borrow using small business credit cards. “All these tiny businesses out there don’t have these great banking relationships they can turn to.”

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