Corporate banking giants like Wells Fargo and Bank America are being swamped by small businesses seeking out emergency financing from the federal government, and smaller lenders in South Carolina are working overtime to try to submit loan applications.
Last week, the U.S. Small Business Administration rolled out the new Paycheck Protection Program, a nearly $350 billion pool of money meant to see America's small businesses through the coronavirus pandemic.
The emergency financing got off to a rough start on Friday with some lenders unprepared to administer the federally guaranteed loans and others refusing to accept applications from anyone who was not an existing business client.
On Monday, problems persisted.
Wells Fargo, one of the country's largest lending institutions, announced it was no longer taking new applications for the emergency loans partly because of the "exceptionally high volume" of requests it had already fielded.
The San Francisco-based bank didn't start accepting applications for the $350 billion loan program online until Saturday. But by Monday, it had so many small businesses lined up that it was concerned it would max out its lending capability.
As a result of news like that, the UFederal Reserve announced Monday that it plans use its powers to buy up loans that banks make under the new federal rescue program.
By purchasing the loans, the Federal Reserve hopes to incentive more banks to participate in the lending program. It will quickly remove the government-backed loans from the banks' balance sheets once they are processed, freeing up the lending institutions to assist more small businesses.
Fred Green, president and CEO of the South Carolina Bankers Association, said some lenders in the Palmetto State took several days to get set up and start accepting applications. But most of them are now ready to help small businesses looking to net some of the federal emergency financing.
There are roughly 70 different banks serving borrowers in South Carolina, and between 55 and 60 are processing the federally backed loans, he said.
Those specialized loans are extremely generous to the companies and nonprofits that qualify. They allow small businesses with 500 employees or fewer to finance their payroll and overhead costs. And if the money is used to retain employees over the next eight weeks, the loans can be partially or fully forgiven by the government.
The emergency loans are one of the few financial resources left available to small businesses who are struggling through the pandemic and the public health restrictions.
As a result, the SBA's website where banks can submit applications and retrieve the finalized loan documents for their clients is being overwhelmed too.
Green heard from several members of his trade group who said it took hours for some bank employees to submit a single application to the SBA for approval.
And on Monday, Green was told the online portal for the loans crashed altogether, leaving bankers with no way to access the documents they needed to finalize the contracts and send out the money to their clients.
That handicapped bank workers who worked around the clock to process the loan applications they received last week, Green said.
The SBA's website was not set up to handle the unprecedented demand it is now under, Green said. But he expects those issues will get resolved soon.
“It’s a great program. I’m sure they will get it up and running,” Green said. “But again for the small business owner that was expecting a check, they are going to have to be patient. The banks are doing everything they can.”