More than 80% of the 415 small businesses ($1-$10MM) surveyed by Greenwich Associates this week have applied for a loan under the SBA’s new Paycheck Protection Program. Based on that rate, some 24 million U.S. businesses will be applying for SBA loans in coming days and weeks. That volume represents a massive challenge that could threaten to overwhelm both the banks that will manage these applications, and the pool of funds allocated for these loans by the U.S Congress.
“Small businesses are moving quickly to apply because they need the Paycheck Protection Program to provide them with the funding they need to survive the COVID-19 crisis,” says Steve Busby, Greenwich Associates CEO. “However, owners and executives of these businesses are worried that funds will arrive too late to help them and that the program will run out of money.”
About 70% of the companies say they are confident that that the Paycheck Protection Program will provide the financial relief needed to help them manage through the current crisis. However, about a quarter of small businesses have doubts about the program’s ability to deliver, and there are widespread fears that funding will be too slow to arrive. “Almost 45% of the companies participating are worried the funding won’t come through in time,” says Steve Busby.
Will the SBA Payment Protection Program Have Enough Money?
There are approximately 30 million small businesses in the U.S. If the 80% application rate among survey respondents is accurate, that means some 24 million U.S. businesses will ultimately apply for a loan. With $349 billion currently available, that works out to $15,000 per business — if all are loans are approved.
“The rough math says that even with the additional $250 billion being discussed, the total of $600 billion may not be enough,” notes Steve Busby. “Time will tell how many applications actually get approved, but if it’s a significant portion of the 24 million businesses applying, more money will likely be needed.”
Roughly 3,500 banks are participating in the Paycheck Protection Program. These banks will need to process applications for the approximately 24 million small businesses expected to apply for loans. The bulk of these applications will likely happen in the next two weeks — the timeframe required for businesses to get the money in time to have an impact. Based on those assumptions, banks will need to process about 1.7 million loans per day over the next two weeks. Considering the SBA approved 58,000 loans worth $28 billion in the entire fiscal 2019 year, that’s a massive increase.
According to Busby, “We need to keep in mind the magnitude of what the SBA and banks are attempting to do. Some hiccups at the onset could probably be expected.”
Frustrations with the Application Process
Roughly one in 10 companies were prevented from applying for the loans because they were either unable to access the system or reach a bank, were unsure how to apply, or because the application process was too complicated.
Overall, the SBA loan application process gets mixed reviews from actual applicants, with roughly a third providing positive ratings, a third giving it negative marks, and the remainder being neutral. However, almost all the companies participating agree the program can be improved. “Small businesses are delivering a clear message that the SBA loan process is frustrating, and that banks need to do a better job at communicating necessary requirements to the companies trying to apply,” says Steve Busby. “Individual study respondents reported that their bankers lacked the information needed to help them with the application process and that some have not received a confirmation that their application had been received or processed.”
In terms of the SBA loan process, business owners and executives would like to see better communications about which businesses qualify for the loans and which do not, and a simpler application process. Respondents are also asking for additional incentives to retain their workforce, increased loan amounts and less restrictive loan requirements.
Where are Companies Getting Information about SBA Loans?
Despite the complaints, most small businesses rely on their banks for information about the Paycheck Protection Program—and most have been satisfied with the assistance they’ve received to date. Almost 70% of companies have been contacted by their banks with information about the loan program. Large majorities of these companies say the information provided by their banks helped them navigate the application process, with 43% of larger companies and 39% of smaller companies describing their banks as extremely helpful. “However, about a third of the smallest businesses have not heard from their banks, and most of them would like to,” says Steve Busby. “In addition, the U.S. Small Business Administration website was cited as the second-most helpful source of information on the program, followed by companies’ accountants and tax advisors.”