Emergency loans were supposed to prop up Miami’s small businesses. They’re still in limbo.
Still waiting for a loan under the government’s $350 billion emergency Paycheck Protection Program?
Get in line.
Linda Kaplan has owned an immigration law practice since the late 1970s. She has one legal assistant, whom she says is invaluable.
As the coronavirus crisis bore down, Kaplan realized she would need emergency funding. So Kaplan applied for a PPP loan with her bank, Wells Fargo. The amount was for less than $10,000, she said.
Tuesday, she received an email from Wells Fargo saying to go to another bank. She would have been happy to do so, she says. But the two other banks she contacted, which she declined to name, said she would have to be an existing customer — and Kaplan says she was not offered the opportunity to open up a new account.
Despite Trump administration reassurances that the PPP program would serve as an immediate source of funding for small businesses whose revenue streams have stopped cold, firms like Kaplan’s find themselves in limbo as they wait for funds.
Under the PPP, banks are supposed to act as the conduit for federally backed loans to small businesses fighting to stay afloat during the coronavirus shock. But the program has faced a difficult rollout as many banks seek clarification of how the loans count against their own loan-to-capital ratios. They also want to know whether they face potential regulatory penalty if a PPP borrower is later found to have engaged in money laundering or fraud.
Those answers still aren’t available — and neither are most of the loans. According to banking experts, the U.S. Treasury Department and Small Business Administration have not yet issued final guidance on those questions — even though that guidance was supposed to be issued earlier this week.
Wednesday afternoon, U.S. Senator Marco Rubio, the architect of the PPP program, tweeted that Treasury appeared to have published that final guidance, but it was not immediately clear whether it was sufficient for some banks.
“If banks are closing these loans, there’s a lot of liability, because material sections of guidelines and regulations have yet to be published,” said Christopher A. Meccariello, Chief Operating Officer of Innovative Financing Solutions, a consultancy that advises banks on government lending programs.
Meanwhile, the Trump administration continues to assert that progress is being made on the program.
“We have 3,500 lenders up on the system with many more getting signed up every day. And I want to assure all small businesses out there: we will not run out money,” Treasury Secretary Steve Mnuchin said on CNBC Wednesday morning.
Mnuchin said he hoped Congress would soon expand the PPP effort.
“And we want to assure everybody — if you don’t get a loan this week, you’ll get a loan next week or the following week. The money will be there,” the Treasury secretary said.
The Federal Reserve also took a step Wednesday to boost lending somewhat, narrowly releasing banking giant Wells Fargo from restrictions imposed on it because of weak oversight from its board of directors in the past that led to abusive customer practices.
“The change will only allow the firm to make additional small business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve’s forthcoming Main Street Lending Program,” the Federal Reserve said in a statement, referencing an additional program designed to support mid-sized businesses.
A common theme emerging from borrowers and banking officials is that priority is being given to existing customers. Speaking on CNBC Wednesday afternoon, the CEO of OceanFirst Financial, a bank active in New York and New Jersey, said as much.
“If you don’t have a business checking account, it makes it a little harder,” said Chris Maher, saying businesses are not being turned away but it “just may take longer.”
Meccariello, the banking consultant, said in an email that preventing existing borrowers from defaulting is “absolutely” being taken into consideration by banks. But the primary reason lenders are prioritizing their existing customer base relates to Bank Secrecy Act (BSA), Know Your Customer (KYC), and Customer Identification Program (CIP) requirements.
“These requirements all relate to Anti Money Laundering and Fraud prevention measures,” he said.
Still, having a strong relationship with a lender is no guarantee of progress.
Wayne Labush applied for a PPP loan Friday as soon as the application system went live. Labush owns Event Service Group, a longtime events production company based in Coral Springs. He banks with a small business lending group in New York called NewTek, which did not respond to a request for comment.
“I was able to reach their vice president,” Labush said.
Labush says he has done exactly what the PPP loan was designed to do: Keep as many workers as possible on payroll, even as revenues have stopped cold. Labush employs about 50 full-time workers in addition to some 150 contractors, like DJ’s and bartenders.
But Labush says he has yet to receive any funding under PPP.
“It’s clear that everyone is just overwhelmed, at every level,” Labush said.
MIami chef Richard Hales has been luckier than many.
The owner of Sakaya Kitchen and BlackBrick in Midtown and Miami Beach’s Bird and Bone applied for PPP loans through his bank, City National. On Monday, he got an unexpected phone call: The loan for Sakaya was approved.
“I almost fell out of my chair,” Hales said.
By Wednesday, his other two restaurants had also been approved. His bank said closing could come as soon as Friday.
Still, Hales described the ongoing lack of information about when he would get his funds as “scary.”
“It sounds like you’re moving along in the system, but no details are being given,” he said. “It’s still great news, and it’s exciting to read it, but… I’m wondering what [the next] steps are.”
This story was originally published April 9, 2020 at 6:00 AM.
