An emergency disaster lending program for small businesses has been so overwhelmed by demand that it has significantly limited the size of loans it issues, while blocking almost all new applications from small businesses, according to people familiar with the situation.
Wells Fargo and JPMorgan chase are being sued by a group of small businesses who allege the companies shuffled loan applications to fulfill larger loans first. Although the SBA has released the total amount of loan funding approved under the Paycheck Protection Program, SBA public affairs staff members have not given information about the total number of disaster loans that have been approved.
New York Attorney General Letitia James and a coalition of 23 additional attorneys general today called for key changes to the Paycheck Protection Program (PPP) to ensure that funds are distributed fairly and equitably to the small businesses that were the originally intended recipients of the loans.
The second PPP round, which opened with $310 billion in funding on April 27, awarded 2.4 million loans worth $181.2 billion as of the close of business on Tuesday, May 5. Only California got more money. The coalition asserts that both the first and second rounds of funding with this program have left numerous hardest hit small businesses across the country underserved. As in the first round, the rest of the funding is expected to run out soon. Round two of the SBA's PPP is now underway, with another $176 billion approved through May 1, according to Keefe, Bruyette & Woods (KBW). Nearly 2.4 million applications had been processed so far, the SBA said.
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It is unclear how numerous loan applications have been processed under the Economic Injury Disaster Loan program, however.
What's more, bankers and CPAs say the technical glitches that plagued the program in its early weeks appear to be more or less resolved and even the smallest of their small business clients are getting funded. "So anybody that took the money that shouldn't have taken the money, one it won't be forgiven, and two, they may be subject to criminal liability, which is a big deal". "In contrast, we find that lenders' preference for borrowers with an existing relationship and the market share of community banks are the main factors explaining the geographical variation in PPP funding".
Some larger companies that are publicly traded or have sufficient liquidity have said they are returning the loans.