Alabama’s struggling small businesses were thrown another lifeline on Friday after President Donald Trump signed a new bipartisan $ 484 billion economic relief bill, offering new hope to thousands of small businesses who were excluded from the first bailout. The bill passed by voice vote in the Senate on Monday and passed 388-5-1 in the House on Thursday.
About $ 310 billion of the new program will be used to supplement the now exhausted paycheck protection program. The program’s first round of funding was used up in just two weeks.
But despite the good news, Alabama small business owners who still need a living cash loan say they’re worried they’ll miss it again. Misinformation and the changing rules of the Federal Small Business Administration have left owners confused, while ill-prepared banks have frustrated long-time customers.
“My bank let me down by not verifying the application for two and a half weeks,” said Kristi Barber, owner of Cheese Cottage restaurant in downtown Mobile, who submitted her loan application to the Consumer Protection Program. payments a few hours after PNC bank started allowing customers to apply. part of the $ 349 billion foreground. “Cabin crew called later and apologized, and I gave them a full ear. They’ve been compassionate to me to the best of their ability, but I blame it squarely on the companies for not removing the red tape involved internally in their underwriting and review process. “
She added, “I know I’m not the only company to suffer from it, I just hope the banks will do more to help their customers in the future.”
Barber said his bank sent an email explaining that it would not be receiving any funds. The reason: She had not initialed two pages on the request, but it was brought to her attention the same day the federal funds were used up, she said. She finally reopened her business on April 20 and has since seen incredible local support with people enjoying the salads, sandwiches and pizza kits.
The Paycheck Protection Program was officially launched on April 3, allowing small businesses with fewer than 500 employees to take out loans of up to $ 10 million from an initial pool of $ 349 billion. The loans have since been very popular, due to the extremely low interest rate of 1% which does not have to be paid for the first six months.
However, a loophole in the program allowed large national chains to apply, as each store had fewer than 500 employees. Shake Shack and Ruth’s Chris are two examples of the many companies that were able to get some of the money. Ruth’s Chris has promised to return the $ 20 million he received.
But the biggest draw is that loans, principal, and interest will be forfeited if companies don’t lay off workers in the first eight weeks.
SBA guaranteed loans, issued by banks, can be used for wages, rent and other expenses and will be canceled based on the number of employees who can be retained or rehired.
It sounds pretty straightforward.
Small business owners across the country flocked to banks only to find that most were not ready for the influx.
Before anyone could have any idea what was going on, the money was gone. Funds dried up in two weeks, leaving many people stranded and wondering where to look for help.
While smaller banks have struggled with the volume of requests, Wells Fargo and other massive institutions with the staff and infrastructure in place have reportedly blocked many long-time clients.
Caroline Lyons de Freitas and her husband reached out to Wells Fargo to help them cope with their loss of income as an independent entrepreneur.
“I have been a Wells Fargo customer for over 20 years, but we only have personal accounts,” she said in a personal message to AL.com. “We pay his taxes annually on our personal account. Wells Fargo told me that because we don’t have a business account or a line of credit, we are SOL. “
She added, “It amazes me that private lending institutions are allowed to do this to people trying to access this program when the loans are 100% guaranteed by the federal government. I called the local SBA chief and he said the banks were perfectly within their rights to do so.
Lyons de Freitas said she applied for the SBA’s Economic Disaster Relief Fund because she was told it was a simpler and more streamlined process. These funds were also exhausted.
Responding to problems faced by small businesses, a spokesperson for the SBA said:
“The existing SBA 7 (a) network was chosen because it has the broadest reach, allowing the greatest number of loans to be made through many existing outlets (lenders). SBA 7 (a) loans are made by SBA-approved lenders to borrowers, and the SBA guarantees a portion of the loan to the lender, to reduce their risk. In the case of the Paycheque Protection Program, this guarantee is 100%. “
Alabama small businesses received about 28,000 loans worth $ 4.86 billion under the program, according to the Alabama Bankers Association. Nationally, there were a total of 1.6 million loans, with the overall average loan amount approved nationally amounting to $ 206,000.
Of the $ 310 billion set aside for payment protection, about $ 60 billion will go exclusively to small businesses that have not established banking relationships. These include rural and minority-owned businesses.
In Birmingham, small businesses and nonprofits that were unable to apply for a Paycheck Protection Program loan because they did not have a previous relationship with a bank can apply through Hope Credit Union. Birmingham Strong will work with businesses and nonprofits to submit nominations.
But even though Lyons de Freitas knows new funds are on their way to the banks, she still worries about what will happen once the banks want the money back or if people fail to pay.
“Honestly, I’m honestly nervous about accessing the PPP loan now after speaking with the guy at SBA because private lending institutions can be given the green light to pester our people for shit if something happens. going on with the loan or if they are behind on payments, ”she said. “A lot of people have the impression that the loans will just be canceled if certain criteria are met, but I’m sure that won’t be the case for everyone.”
Both Barber and Lyons de Freitas have said they believe banks favor companies that take on larger loans so they can take advantage of the increased origination fees on each loan.
And they might be right.
Small business owners across the country have sued big banks such as JPMorgan Chase, Wells fargo, Bank of America and American Bank, claiming to have given priority to larger loans in the PPP due to the increased fee structure.
Plaintiffs in the cases say SBA data shows lenders processed twice as much as $ 150,000 and took out loans in the past three days compared to the first 11 days.
The program allows banks to earn a 5% origination fee on loans up to $ 350,000; 3 percent on loans of $ 350,000 to $ 2 million; and 1% on loans between 2 and 10 million dollars, according to Bloomberg. For example, this means that a loan of $ 350,000 would incur charges of $ 17,500, compared to $ 100,000 on a loan of $ 10 million.
Rick Keifer, who owns Ultimate Relocation, a condo business in Orange Beach and Gulf Shores with his wife, has had similar experiences with the SBA and his bank, BB&T. He has lost $ 39,000 in reservations since the crisis began and says he has not received any help from the federal government or his bank.
“We applied for disaster funding on April 7 and got a confirmation number,” he said via email, then by AL.com. “Then I called SBA on April 10 because I hadn’t heard anything and the SBA told me everything was in order and they would call to confirm my information and process the request. [It] never happened. “
Keifer said that after requesting the PPPL application from his bank, he received automated emails on April 7, 11 and 13 saying the bank was either waiting for requests from the SBA or was processing requests received in batches. On April 16, she was told in an email that the funds were completely depleted. He never received an application.
“These guys are failures and they just lost a client,” he said.
It is not yet clear when the next round of silver will be available.
Barber, owner of Cheese Cottage, said that while the past three days of curbside pickup has been positive for her business, she knows it might not lead her and her beleaguered employees until the end of the current crisis.
“I reopened thinking I would have the loan now, so we’re still worried about what’s going to happen next,” she said. “But after posting my account of what happened on social media, other banks in the region contacted me and helped me with my next application. Crossed fingers.”