Update April 7 – Confusion Surrounds Paycheck Protection Program

Confusion Surrounds Paycheck Protection Program

There has been a lot of confusion and frustration over the CARES Act and the access small business has to the economic relief offered. Recently the Administration rolled out the Paycheck Protection Program in which small businesses could apply for financial assistance through the Small Business Administration.

According to the home.treasury.gov website information sheet, “You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating.”

The issue appears that a small business must have a lending or deposit relationship with that banking institution to apply. Not all credit unions have qualified to accept these SBA loans so those small businesses that bank with some credit unions are struggling to find other sources for submitting the SBA application. In addition, there are some reports of small businesses that have a deposit history but not a loan history with a banking institution being turned away by banks.

About 10% of the $350 billion has been approved. The Treasury Department is working on getting another $250 billion approved by congressional leaders. All of this is not helpful for small businesses that are still struggling just to get their application completed.

Today, April 7, Rep. Mike Thompson, Rep. Adam Schiff and Rep. Susan Davis wrote to Federal Reserve Chairman Jerome Powell asking him to ensure small businesses can access the economic relief provided in the CARES Act. They cited Wells Fargo Bank’s limitations on participation in the Paycheck Protection Program to existing customers as a policy causing exceptional hardship for some small businesses and asked the Federal Reserve to consider limited and appropriate regulatory flexibility. A copy of the letter is below. 

April 7, 2020 

Jerome H. Powell, Chair

Board of Governors

Federal Reserve

2001 Constitution Ave NW

Washington, DC 20551


Dear Chair Powell:

 We write to request that the Federal Reserve consider additional actions to ensure the critical relief for small businesses enacted under the Coronavirus Aid, Relief and Economic Security (CARES) Act is accessible to all who need it. We know you share our belief that the loans and grants made available to small businesses through the CARES Act are a critical bridge as they grapple with the sudden and precipitous drop in economic activity brought about by the COVID-19 crisis.

 As you are aware, small businesses are applying for CARES Act loans at a high rate, and many are turning first to banks at which they already use. In recent days, we have received inquiries from small businesses in our districts who have encountered major difficulties applying for CARES Act assistance because their bank, Wells Fargo Bank, is limiting its participation in the Paycheck Protection Program (PPP) to existing customers who are small businesses with fewer than 50 employees or nonprofits.

 Wells Fargo has stated that they have taken this action as a result of limits on the assets they may hold placed upon them by banking regulators. We fully recognize and support the need for strong regulations on large lenders to ensure the stability of the financial system. However, under the present circumstances, with small businesses struggling to remain operational and meet payroll obligations, we believe that we must consider additional flexibility to ensure the rapid and efficient flow of relief funds to those who need it, regardless of their commercial bankers.

 Additionally, we have heard reports from businesses that they have found it difficult to work with new lenders because of due diligence requirements to work with new customers. Again, we request that you consider ways in which regulators might address these concerns and provide limited relief through a safe harbor to encourage the broadest access possible to the CARES Act relief. If legislation is required, we stand ready to work with you and other interested members on that issue.

 As CARES Act funds will be distributed on a first come, first served basis, businesses in our district are deeply concerned that further delay could result in being shut out from the relief Congress has provided. Therefore, we urge you to consider additional steps to ensure well-intended regulations on banks, including Wells Fargo, do not have the unintended consequence of preventing small businesses of all sizes from accessing desperately needed capital.

 Thank you in advance for your consideration of this urgent matter.