On Friday morning, April 3, 2020, small businesses in America stood still. Entrepreneurs were frantically hitting refresh on their banks’ websites, hoping to get their Payroll Protection Program (PPP) loan applications submitted before the Small Business Administration program ran out of funds. The first round of $360 billion was quickly depleted, and the second round of $310 billion is currently being processed.
PPP Loan Update
I’ve conducted a survey of 147 entrepreneurs who have applied for the PPP. Though the sample size is not large enough to be statistically significant, the data sheds light on the application process.
PPP Applications Funded as of May 5, 2020.
The good news is nearly half—47%—of PPP loan applications have been approved as of May 4, 2020. That number is a significant increase from April 20, 2020 when only 18% of PPP loans were approved. On average, the loans were processed in 15 days.
PPP Applications Approved Over Time
There are likely two reasons for this uptick in approvals. First, the SBA has $310 billion in new money to allocate. Second, there was a great deal of confusion among the SBA, banks and applicants about how to process the loans. It took time to iron out the wrinkles in the process, and now it’s much smoother.
The PPP Application Process Was a Total Disaster
Entrepreneurs had many comments on the PPP process that were not fit to print. The profound sentiment was frustration. The SBA rolled out this massive program incredibly quickly, which resulted in a process that left many small businesses exasperated and asking the following questions:
1. Where should I apply for PPP?
According the survey, 91% of banks applied at the bank they have a current banking relationship with. However, many small businesses were turned away. Bank of America initially would not accept applications from any small business that did not currently have an account and a line of credit with them. Wells Fargo requested their customers to apply elsewhere. Major banks were not allowing new customers to submit a PPP application. This forced many businesses to seek an alternative lender.
Some entrepreneurs turned to fintech companies. Many fintech companies such as Kabbage, Lendio, Mercury and PayPal pivoted to offer PPP loans. Others turned to their small community banks.
Smaller banks seemed to be the big winners in the PPP. In contrast to the big banks, where getting an actual human being on the phone was next to impossible, small businesses owners commented on the personal service and attention provided by small banks.
Smaller banks deployed almost all of the PPP loans. New data from the Federal Reserve show the total amount of commercial loans has increased by $153 billion since April, with $130 billion, or 89%, of that growth coming from small banks. Prior to PPP, small banks held only a third of commercial loans.
2. Where is my PPP application in the process?
The biggest complaint of entrepreneurs was that the process was opaque. Nobody, including the banks, seemed to understood the process. Banks either did not communicate, or communicated inaccurate information to small businesses. Beyond the opacity, the process seemed to be an arbitrary nature of the process. Their shot at funding was tied to how their bank chose to roll out the program, which varied widely.
3. Are big business PPP applications being prioritized over my application?
It seems possible, perhaps likely, that larger “small businesses” may have been given priority at the expense of true small businesses. The banks were financially incentivized to service the bigger loans. This has resulted in the indignation of true small businesses and has sparked lawsuits against the major banks.
Additionally, the public outcry against larger “small businesses” who received PPP loans has caused many companies such as Ruth’s Chris Steakhouse, Shake Shack, Sweetgreen, Auto Nation and even the Los Angeles Lakers to return their loans to the SBA.
4. Is there any PPP Funding Left?
According to the SBA, by May 1, 2020, they deployed $176 billion of the $310 billion earmarked for the second round of PPP funding. So, there is hope for the 53% of small businesses that have applied and not received funding thus far.