Just Who Is Getting These Small Business Loans?

Almost nobody we know…

Options offered on the Small Business Administration’s website to “help you overcome the challenges created by this health crisis”. But can they be successfully accessed by the average business owner?

We realize this is hardly scientific, but after seeing friends who operate small businesses comparing notes all last week (on Twitter, Facebook, etc.), on how they’re not seeing emergency loan money from the federal government that they applied and qualified for–and more importantly, need–we decided to take some time this weekend to call around.

We spoke to about a dozen friends, and friends of friends, all of whom would seem to qualify for relief through the federal government’s emergency small business programs, based on the requirements appearing on the government’s web pages for those programs. And all of them already have submissions for loans in.

And we asked: have they received any money yet?

The answer? One. He got $1,000.

In fact, several people we talked to said all they got was an email acknowledging they’d sent in an expression of interest for inclusion in the program to which they applied. Since then, nothing.

Some others, who have been aggressively pursuing their banks, say those banks are going out of their way to avoid them.

Crazy thing about all this is there’s no risk to banks to make loans of this kind. So processing at a snail’s pace–if at all–can’t have anything to do with the main reason banks usually like to drag things out: they’re not quite sure if you’re going to be able to pay them back. But with these loans that doesn’t matter at all.

In that light, the most obvious reason for the long delays is that demand is so overwhelming that banks don’t have the systems in place to keep up. Especially–for some reason–the biggest banks, which should have the best administrative tools and best technology.

Both the government and banks pretty clearly underestimated the demand, and almost all the programs quickly ran out of money and are having to be replenished. Which is probably the most understandable thing about this.

At the same time, banks have been almost certainly working hardest to keep their biggest “small businesses” happy, because they stand to lose the most if those businesses go out of business, or pull out because they get upset over substandard services.

Also, while banks risk nothing to deliver these loans, they also don’t make much money from administering them either. (But it’s also not nothing). Still, they might not be putting their best people on, doing a lot of extra work and spending a lot of extra time and money to get the money out the door in the most fair and efficient way possible, because they’re not really being incentivized to do that. Nor should they be.

Nor, maybe, should we be surprised. Because even before this, banking would not be at the top of our list of businesses known for doing things out of the goodness of their own hearts.

Also, the one person we talked to who did get any amount of money, got his $1000 through the “Economic Injury Disaster Loan” program or EIDL. And there’s a big difference between this and those PPP loans we more commonly hear about. EIDL money is paid out directly by the federal government, and does not involve making a loan application through a bank. Although it’s run out of money too.

So what does this all mean in practical terms? Probably that the smallest businesses, the mom-and-pop operations that typically don’t have multiple revenue streams so might need help the most, are the ones getting helped the least. Especially in major hard-hit and/or high-demand markets like New York, New Jersey, Massachusetts and California, where big banks tend to dominate and some “small businesses” tend to be quite large. (That one person we spoke to who did get money is in Hawaii.)

Another person we spoke to was surprisingly forgiving about his bank’s inability to get him any money, (much more so than we would be), commenting:

It just doesn’t sound like they have the staff to do it unless they were really good at originating small business loans before.”

Another showed us letters and emails she received from her bank, one of which starts out promisingly:

We understand how important these resources are for you to continue operating your businesses.”

Then continues:

You remain in queue.”

Followed by the kicker:

We are not able to begin your application at this time.

In other words, ‘you’re in line, only there is no line.’

Maybe all that will change now that Congress passed a bipartisan bill replenishing funds. More than $300-billion in new PPP money should start kicking in this week. But a lot of those dollars may already be spoken for. (Anyway, we’ll do another round of calls later this week and update if any money has started trickling or even pouring in to anybody else. But we’re not holding our breath.)

Even with the knowledge of new money pending, several loan applicants said they were decreasingly hopeful, and some even speculated there might be some purpose in the government not getting the money paid out.

If not giving voice to full blown conspiracy theories, they figure Trump’s people aren’t too upset their small loan program is broken, because not getting money out in a timely way will force many small businesses to reopen before they feel it’s safe to do so. And some of the small business owners told us flat out that without seeing any loan money soon or ever, they’ll need to do that to stand any chance of survival.

Whether that’s deliberate or not, it certainly does dovetail with the President’s goal of getting the economy open sooner rather than later. Even if his main defense against the Coronavirus still mostly consists of wishes.