Coronavirus rescue loans for small business went to community lenders as big banks fumbled

President Trump and Jovita Carranza, administrator of the Small Business Administration, listen as Treasury Secretary Steven T. Mnuchin speaks about the coronavirus in the White House on April 2.
(Alex Brandon / AP)

Small businesses that rushed in vain to tap $349 billion in emergency U.S. loans to survive the coronavirus crisis are facing a harsh reality: Some of the nation’s top banks lagged behind relatively tiny rivals in handling applications.

As banking giants tried to automate the process, hundreds of employees at Texas lender Cullen/Frost Bankers Inc. volunteered to fill out forms manually, working late into the night in homes to set up $3 billion in loans. That contrasts with Wells Fargo & Co., which arranged only about $120 million by the time the program was depleted this week, according to people briefed on its progress.

Such figures, just starting to trickle out of U.S. lenders, are bound to fuel more anger over the chaotic Paycheck Protection Program administered by the Small Business Administration. They show the nation’s top bank, JPMorgan Chase & Co., arranged more loans than any other, as one would expect. But it was only several billion dollars ahead of some firms a fraction of its size.


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The surprising success rates of regional and community lenders suggest businesses across the country got money based on which bank they happened to pick, rather than just how early they got in line. Many entrepreneurs were desperate to get assistance from the first-come, first-served program and were devastated this week to learn they won’t get help unless Congress allocates more funding.

“It’s a real emotional process,” said Reese Howell, chief executive officer of Celtic Bank in Utah. “They are wondering how they pay their employees and how they will stay in business.”

Wells Fargo said in a statement Friday it moved as quickly as possible to get loans for clients while trying to comply with the program’s requirements. It promised it’s ready to help the moment Congress allocates more funding.

“Invitations to apply have been sent to more than 450,000 customers with a total notional loan amount of around $50 billion, which we stand ready to submit to the Small Business Administration for its acceptance,” the San Francisco-based bank said. That’s “an amount comparable to our peers.”


“Chase has secured more funding for small businesses than anyone else in the industry, and we’re fully prepared to help many, many more once additional funding is approved,” JPMorgan said in an emailed statement.

Democrats and Treasury Secretary Steven T. Mnuchin have struggled to reach an agreement on expanding the program. Mnuchin has signaled he wants to add $251 billion, while key Democrats have insisted on changes as well as an additional $250 billion to aid hospitals and state and local governments.

A report released by the SBA and Treasury on Friday showed that the most financing arranged by any bank on behalf of clients was about $14 billion — roughly 4% of the total available under the program so far. The regulator didn’t name any banks, but JPMorgan confirmed it’s the lender behind that figure.

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PNC Financial Services Group, based in Pittsburgh, arranged roughly $9 billion in loans, according to a person with knowledge of the matter. KeyCorp, Ohio’s second-largest bank, said it arranged about $7.8 billion. Combined, they have less than three-quarters the number of branches as JPMorgan and only a fifth of its assets.

Executives at some of the country’s largest banks, speaking on the condition they not be named, have been expressing deep frustration for weeks about getting guidance from President Trump’s administration on how to comply with the hastily prepared rescue program. The SBA posted initial rules the night before the program went live early this month.

Big banks that paid billions of dollars in sanctions after the 2008 financial crisis for flaws or omissions in loan applications — in that case, mortgages — assumed paperwork submitted to the SBA would need to meet high standards, or they would risk getting in trouble again. Wells Fargo has been under particular pressure to show that it overhauled its internal controls.

Some big banks spent days trying to get more guidance from the agency about elements of the application process, according to people with knowledge of the talks.

Meanwhile, executives at major banks told their employees to make sure that they had validated financial information from small businesses before submitting packets to the government. Some were floored when the SBA posted a notice on its website Tuesday, confirming that’s necessary but saying that “lenders who did not understand that these steps are required” didn’t need to withdraw applications already submitted. That essentially gave an edge to lenders that had skipped that time-intensive step to get their customers’ applications in first.

The SBA has said that working closely with the Treasury, it launched an unprecedented program in just one week and quickly resolved issues identified by lenders and borrowers.

Community banks probably punched above their weight because they were more willing to act while awaiting additional information, said Paul Merski, an official at the Independent Community Bankers of America who oversees its work with Congress. “A lot of independent community banks did jump on the program very quickly — just took on the risk without having all the guidance,” he said. “Banks have to judge their own risk tolerance for these loans and the liability of getting stuck with bad loans if they didn’t do the paperwork properly.”

Some smaller lenders may have benefited from past dealings with the SBA.

LiveOak Bank, the most active SBA lender in 2019, spent two weeks gathering payroll information from customers before the program even launched. That may have helped it get applications approved. The company declined to comment Friday on how many it processed or the total financing it arranged.

Wells Fargo, which is typically a top SBA lender, had its own problems as the rescue program began.

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The bank initially ran up against a sanction imposed by the Federal Reserve in 2018, capping its assets. But even after the restriction was eased, the bank struggled to get application packets completed and submitted. After years of getting faulted by lawmakers and regulators for scandals, its managers were intent on building a system that complied with government rules.

Executives acknowledged Tuesday they had fallen behind but said they expected to catch up with the bank’s largest rivals soon. Two days later, the program officially ran out of money.

“Given the magnitude of the crisis the country is facing, we are hopeful that Congress will approve additional funds for the PPP and we will continue accepting new applications so we will be ready to proceed if and when that happens,” the company said in a statement Thursday.

Cullen/Frost, less than a 50th the size of Wells Fargo, had trouble getting its computers to work seamlessly with the SBA’s systems, so it marshaled an army of employees to handle forms. Most volunteered and worked from home, where they hopped online in the early morning and worked until after dark, contacting clients directly with questions.

The firm adjusted its process a few times and deployed some software to help. But much of the work was done by hand, CEO Phil Green said in an interview.

“We have processed more applications than we take in in a year and a half — and we’ve done it in 10 days,” Green said. “You had to manually wrestle it to the ground.”