Banks Curb PPP Applications to Meet Their Growing Backlogs

The disappointments keep stacking up for the self-employed.

The Biden administration announced a key revision to the Paycheck Protection Program on February 22 that made it possible for sole proprietors, independent contractors, and self-employed entrepreneurs to qualify for bigger loans than before: they could apply based on their gross income as opposed to net income or net profits. But the Small Business Administration didn’t produce the guidance lenders need to process the changes until March 3. In that guidance, the Small Business Administration said the new calculation would not be retroactive. In other words, borrowers who filed early in this round of the forgivable loan program would not be eligible for the higher loan amounts.

What’s more, the American Institute of CPAs noted recently that many lenders would need a full week to incorporate the guidance–meaning they couldn’t start processing the higher-amount loans until March 10.

That’s if lenders are participating. Chase, the No. 1 PPP lender in the country measured by net dollars, is opting out of writing loans based on the revision. In a notice on its website, the bank says:

“You’ll need to calculate your loan amount using net profits when you apply through Chase. If you want to use gross income to calculate your loan amount–which may result in a larger loan amount–you’ll need to find and apply with another lender.”

Chase cites a backlog of applications, which it declined to detail, along with processing delays at the SBA for its inability to adapt the new guidelines. “We’re focused on the high volume of applications still coming in and currently being processed,” says Anne Pace, a Chase spokesperson. “It can take weeks for the applications to get processed, approved by the SBA, and funded.” She adds that as a result, the lender will stop accepting PPP applications on March 19, well in advance of the existing end date of March 31.

Bank of America, the second-biggest PPP source, says it’s closing the lending window March 22 to give itself enough time to process the roughly 30,000 applications in its backlog. While BofA is allowing sole proprietors to apply based on the latest rule changes, it hasn’t yet made any changes to its online application–and it’s not clear if it will. BofA is instead instructing these borrowers to apply for either their first- or second-draw PPP loans based on their net income. The lender says it will contact clients whom it believes, based on the loan documentation, may be eligible for a higher PPP loan amount.

In an email to customers last week, Chase said that customers who’ve applied for a PPP loan but haven’t yet been approved by the SBA could withdraw their applications and seek a new lender. But, as Pace notes, “that slows them down,” and puts them in jeopardy of not having their loan approved in time.

This latest PPP round has been dogged by delays. Many second-draw PPP borrowers were mistakenly rejected outright, as some were told, incorrectly, that they had criminal records, among other inaccuracies. As many as one third of second-draw applicants received requests for more information after the SBA’s automated PPP system increasingly returned error codes arising from from, say, mismatched data between one round to the next.

According to a comment letter sent to lawmakers last Friday, various financial services trade associations described a “gray area” in which borrowers hitting certain hold codes finds themselves. At that point, the associations say lenders are unable to resolve the issue and the SBA must review problems directly. “SBA has stated they will work to resolve any hold codes expeditiously. However, in practice, this review process has led to thousands of PPP borrowers having their applications on hold for several weeks or longer.”

Like other lenders, Chase supports an extension of the PPP program. Pace adds that should Congress act to push the deadline past the March 31 end date, Chase would implement the revisions. It should be noted that the American Rescue Plan Act, which is expected to reach President Joe Biden’s desk this week, does not extend the PPP. It does, however, add another $7.25 billion to it–putting the full amount still available after passage at $112 billion, as of March 7.