US banks see lending capped after small firms lose out on funding

The United States government notified lenders on Sunday that it will cap how much each bank can lend under the emergency-loan programme designed to keep workers on payrolls during the coronavirus pandemic, hours before the reopening of the lending programme.

The Small Business Administration (SBA) will impose a maximum dollar amount for individual lenders at 10 percent of Paycheck Protection Program (PPP) funding, or $60bn per lender and pace the applications filed, according to SBA guidance on Sunday to lenders that have received a significant number of applications.

The steps are “prudent and reasonable” due to the unprecedented demand for the loans, the memo said.

US banks were girding over the weekend for another frantic race to grab $310bn in fresh small-business aid due to be released by the government. The SBA was due to reopen PPP funding at 10:30am ET (14:30 GMT) on Monday, allowing lenders to resume processing piles of backlogged applications from businesses hurt by the coronavirus shutdown.

The SBA will also take applications in one bulk submission with a minimum of 15,000 loans, the SBA said in the memo.

The PPP came under criticism after a number of publicly traded companies with thousands of employees and hundreds of millions of dollars in annual sales got loans, while smaller businesses did not.

Nearly 5,000 lenders, including big banks such as JPMorgan Chase & Co and Citigroup Inc as well as community banks, participated in the prior, $349bn round of funding. No lender accounted for more than 5 percent of that total, the SBA said previously.

Despite technical and paperwork challenges, the programme’s first round of funds was exhausted in less than two weeks and lenders expect the second tranche of cash to be snapped up even faster by tens of thousands of applications queued up.

That has left thousands of small businesses that have been forced to shut down in order to stem the disease outbreak, without badly needed funds to keep them afloat. The first-come, first-served basis was criticised for leaving out smaller firms without pre-existing lending relations, even if their need was greater than others.

More than 25 percent of the total pot went to fewer than 2 percent of the firms that got relief, a Reuters analysis of the data showed.

Bank of America Corp Chief Executive Officer Brian Moynihan said in an interview with TV network CBS News on Sunday: “We need to take away the first-come, first-served aspects and to make sure it’s fully funded.”