Indianapolis-area banks, which have been flooded with applications for coronavirus relief loans over the past few days, are encountering numerous glitches as they work through the system.
The federal loan program, known as the Paycheck Protection Program, offers small businesses forgivable loans they can use for payroll and other allowable expenses. Loans are guaranteed by the Small Business Administration, but borrowers must apply through a bank to access funds.
Friday was the first day banks could begin submitting applications to the SBA.
“We’ve been processing, literally, 24 hours a day for the last four days,” said David Findlay, president and CEO at Warsaw-based Lake City Bank. The bank has 50 locations, six of which are in the Indianapolis market.
As of noon Tuesday, Lake City Bank had received about 1,100 applications or queries. It had approved 533 of them, representing a total of $307 million in loans, but it’s still waiting for additional federal guidance before it can release this money.
“All we can do is what we’re doing now, is push our clients’ applications through the system,” Findlay said. “These are customers who really need this money—and we want to get it to them.”
Findlay said the bank has had “pretty significant challenges at certain times” with the SBA website. Monday afternoon, for instance, “we had users that were getting frozen in their process or kicked out of the system.”
To deal with this challenge, Lake City has had employees working round the clock to submit PPP applications.
“We’ve identified the best time to process is when most banks are not on the system, during the off hours,” Findlay said. “At 4 a.m. on Sunday morning, applications were flowing pretty well.”
Lake City’s experience with the SBA website—bottlenecks at peak hours—is not unique.
Indiana banks have already seen “very, very heavy” interest in the program, said Indianapolis banking attorney John Tanselle, a partner at Chicago-based law firm SmithAmundsen LLC.
Many banks worked through the weekend to handle the demand, Tanselle said, but they have been frustrated by the limitations of the SBA’s system.
Banks are the ones who accept Paycheck Protection Program loan applications, and the banks are the ones that will fund these loans. But the banks must submit the application information, along with a request for a loan guarantee, to the SBA, before the loan can close.
“The issue that a lot of banks in Indiana have dealt with is, the SBA system is not ready for this volume,” Tanselle said. “It’s inputting all this information to the SBA that’s been a frustration for the bank, and a bottleneck for a lot of them.”
Cincinnati-based First Financial Bancorp began accepting PPP applications late Friday. The bank received at least 500 applications within hours, said Jeff Magginnis, who is based in Indianapolis and is an SBA sales manager at the bank.
First Financial has 145 branches total, including 11 in the Indianapolis market.
By Tuesday morning, Magginnis said, First Financial had taken about 3,400 applications across its operating footprint, representing a total of $800 million in loan requests.
Magginnis said the bank has mobilized its entire staff to handle the PPP program, and its internal systems are running smoothly. The issue, he said, is that the bank is finding it difficult to submit information online to the SBA.
“The SBA’s platform that we normally use for loans is what they built this on, and they have had some challenges in their systems,” Magginnis said. “Every bank that’s participating in the program in the country is trying to get loan numbers (from the SBA) at the same time.”
Magginnis said his bank has already gotten approvals for some applications, and he expects borrowers should have cash in hand by the end of this week.
Another frustration for banks is that details of the program are still emerging.
“Everybody is well-intentioned, but this got rolled out so quickly,” said Jerry Orem, president of Brownsburg-based Hendricks County Bank & Trust Co.
The bank began accepting applications late Friday. By Monday afternoon, it had received about 100 queries, about 25 to 30 of which had submitted completed applications. Orem described this as a “very heavy response” for his small bank, which has about $165 million in assets and four locations, all in Hendricks County.
Based on the size of their payroll, PPP borrowers can qualify for loans of up to $10 million each.
But, as of Monday, Orem said he was still seeking clarity on some key issues, including exactly who is eligible and what payroll documents borrowers need to submit.
Orem said he believes the SBA is working hard to address these issues and will get things sorted out soon. “I think (the challenges) will delay it by a matter of days and not by a matter of weeks.”
Another issue that banks are keeping in mind: money available for the PPP is limited.
The federal government has budgeted $349 billion for the PPP program. On Tuesday, The Washington Post reported, the U.S. Treasury Department planned to ask Congress to approve another $200 billion.
But because replenishment is uncertain at this point, banks are rushing to get loans approved now.
“That ($349 billion) will go pretty quickly. Estimates vary, but it will not be long that that money is gone,” Magginnis said.