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The $2 trillion coronavirus bailout package that Congress passed last month includes a lifeline for small businesses facing existential threat amid store closures and plummeting sales. But that lifeline — the Paycheck Protection Program intended to grant forgivable loans to small businesses who retain their employees — may be proving hard to grasp. 

The program initially outlined some $349 billion in emergency loans, but on Tuesday, Treasury Secretary Steven Mnuchin said he had secured an additional $250 billion for the program. 

The U.S. Small Business Administration, the federal agency overseeing the deployment of so-called PPP loans, allowed banks to start receiving applications on Friday, but there are already signs of engine trouble. Though the loans are backed by the SBA, and purportedly funded through the Coronavirus Aid, Relief and Economic Security Act that the House passed March 27, banks receiving applications are able to put their own gloss on the eligibility criteria and throttle the flood of inquiries. 

Banks, allowed to set up their own application forms and portals, have shown an inclination to prioritize the applications of their existing borrowers, attorneys said.  

“The CARES Act doesn’t have requirements for borrowers to have an existing relationship with the bank, but if you’re a bank, one way to stem the flood is to focus on customers with whom you already work,” said Morgan Nighan, partner at Nixon Peabody LLP, who is advising clients on applying for PPP loans. 

“We’re [also] hearing that banks are requiring wildly different information from borrowers, some of which are not required by the CARES Act,” she said. “We’re telling clients to expect that it’s going to involve bureaucracy, and waiting time, and to expect a fair amount of frustration.” 

The PPP loans, which provide forgivable loans of up to $10 million to small businesses hit by the pandemic, are meant to incentivize retaining employees during a time of historic layoffs — unemployment claims in the second half of March spiked by nearly 10 million. The loans are meant to pay for up to eight weeks of payroll and operational expenses, and the program is designed to forgive the loans for those central costs if the company uses at least 75 percent of loans toward payroll costs. 

Christopher Skinner, who founded his New York City-based beauty branding agency School House in 2015, is still waiting to hear back on his application for a PPP loan. Through the  pandemic so far, Skinner has continued to pay his 15-person company, as well as rent for the month of April, though he and his staff have been working remotely in light of the ongoing lockdown in the city, and paid his firm’s independent contractors.

But the additional funding would be critical as clients delay or scuttle projects, or change their billing terms with his agency during the crisis, he said. 

Skinner applied for a PPP loan through Bank of America, through a process he described as full of twists and uncertainty. He was first rebuffed for not having a prior borrowing relationship with the bank, such as a previous line of credit, even though he did have a Bank of America business checking account.

After multiple calls with the bank’s customer service department on Friday, he was able to get his application through over the weekend, when the bank expanded its eligibility criteria to accept applications from its small business owner clients with a deposit relationship with the bank, as long as they didn’t have a lending relationship with another institution. 

“This is about getting the information out there so we can make change, and allow small businesses to access the funding they need to stay afloat, to keep people employed, and bounce back when they’re ready,” he said.  

Bank of America, which began taking applications at 9 a.m. on Friday, received tens of thousands of applications on the first day, according to spokesman Matt Card. The bank had initially limited applicants to small business clients who had an existing lending relationship with the bank, in order to move the applications quickly, he said. It expanded the eligibility requirements over the weekend. 

“It’s all in the intent of making sure that these applications are uploaded to the system as quickly as possible,” he said. 

The PPP loans, though administered by the banks, are government-funded through the stimulus package. And unlike in the case of traditional loans, the banks are not playing an underwriting role here to determine whether a borrower is able to repay the loan.  

The agency is leaning on banks to help navigate the scope of the program. The SBA, known mainly for providing so-called 7(a) financial assistance loans to small businesses, approved some $28 billion in loans to small businesses in fiscal-year 2019, according to its financial report in November. In comparison, the agency is overseeing an emergency loan program that is meant to dispatch hundreds of billions of dollars in loans.

As complex as the application process may seem now, there’s a harder road ahead for businesses, attorneys said — applying later for loan forgiveness, if they have met the criteria of retaining their employees, and spent 75 percent of the loans proceeds up to eight weeks for payroll costs, as the program states. 

“It’s going to be a lot easier to get the money than it will be to get it forgiven, that’s my sense,” said Nighan of Nixon Peabody.