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Five problems banks face in getting coronavirus relief out the door

Small- and midsize business owners around the U.S. are clamoring for a cut of $349 billion in emergency coronavirus loans, swamping banks and credit unions with an overwhelming surge of applications.

Lenders have already approved tens of billions of dollars in loans in less than a week and the Senate is set to approve another $250 billion in funding for the Paycheck Protection Program (PPP) on Thursday.

Even so, financial firms are facing a slew of obstacles as they handle the onslaught, driven by inconsistent federal guidance, an uncoordinated and abrupt beginning, disputes within the industry and backlash from government officials.

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Here are five major problems faced in getting money to businesses in need.

Unprecedented demand

As the coronavirus outbreak forces restaurants and storefronts across the U.S. to shutter, business owners are scrambling for aid to stay afloat during a shutdown with no clear end date. 

The PPP provides loans to small businesses that can be forgiven if used to cover payroll and other essential expenses, providing a sliver of sorely needed relief to struggling American firms. The program is administered by the Treasury Department and Small Business Administration (SBA).

“We were just being inundated,” said Cynthia Blankenship, vice chairman of Bank of the West, a Fort Worth, Texas-area community bank. Blankenship estimated that on Monday alone, the bank received calls from roughly 250 existing customers and 500 from customers of larger banks that were slow to take up the PPP.

“We were getting these small businesses that had like $300,000 in their business account that were just livid and desperate.”

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Business advocates have warned the administration that while the program is helpful, it will do little on its own to keep firms alive amid a massive economic shutdown. Lawmakers and administration officials are bracing for the initial funding to run out quickly.

“If you can't get the loan today or tomorrow, don't worry, there will be money. If we run out of money, we'll go back for more," Treasury Secretary Steven MnuchinSteven MnuchinDemocrats justified in filibustering GOP, says Schumer Yellen provides signature for paper currency Biden's name will not appear on stimulus checks, White House says MORE said Wednesday on Fox Business. 

Old technology buckles under a new program

The crush of applications has overwhelmed not only SBA officials, but also the technology the administration used to process annually just a fraction of the first round of PPP funding. 

SBA’s E-Tran loan application system crashed over the weekend, creating massive backlogs even at banks used to navigating the agency’s system for other loans. Other banks struggled to receive SBA accreditation until days after the program began on Friday, overloading staffers already stretched thin by the unprecedented demand.

“E-Tran is still causing issues, but seems to be better than what it was over the weekend/earlier this week,” a banking industry source wrote in an email. The source estimated that while banks have been able to send out money, it’s “nowhere near the numbers coming from SBA and Treasury.” 

Late and incomplete guidelines

Treasury and the SBA began approving PPP loans just a week after President TrumpDonald TrumpCaitlyn Jenner on Hannity touts Trump: 'He was a disruptor' Ivanka Trump doubles down on vaccine push with post celebrating second shot Conservative Club for Growth PAC comes out against Stefanik to replace Cheney MORE enacted the bill that created the program, writing the rules and legal guidance for lenders along the way.

The administration has been forced to revise legal guidance for banks about what promissory notes to use and how to include PPP provisions in loan paperwork, among other snags that could slow the approval process. While banks and credit unions are eager for clearer, standardized guidance, senators from both parties are pushing for changes.

Concerns over legal liability

The brisk rollout and massive demand for the PPP have prompted fears among bankers about the potential legal risk they take when issuing loans under the program. Banks are awaiting guidance on how to navigate federal anti-money laundering laws but fear that the program may not protect them fully from frauds they unwittingly funded despite checking the necessary legal requirements.

Former Federal Reserve Chairwoman Janet YellenJanet Louise YellenBusiness groups target moderate Democrats on Biden tax plans On The Money: How demand is outstripping supply and hampering recovery | Montana pulls back jobless benefits | Yellen says higher rates may be necessary IMF warns global tax deal 'urgently needed' to avoid potential trade war MORE, who approved the strictest penalties on a bank in the Fed’s history, even suggested to House Democrats this week that they consider a legal safe harbor for lenders issuing PPP loans.

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Political headwinds

Banks, credit unions and other lenders are also facing political fire for their efforts to manage the surge of PPP applications, with some criticism tied to the stigma of the 2008 bank bailout.

Sen. Marco RubioMarco Antonio RubioThe unflappable Liz Cheney: Why Trump Republicans have struggled to crush her  Crist launches bid for Florida governor, seeking to recapture his old job The Hill's 12:30 Report - Presented by ExxonMobil - Trump, Cheney trade jabs MORE (R-Fla.) last week ripped Bank of America for limiting PPP applications to previous business-lending customers, calling on the massive company to aid the U.S. after taxpayers were forced to salvage the financial sector during the last economic downturn.

An SBA official also excoriated major banks for their delays in processing PPP loans in a video obtained by The Washington Post.

Banks “that had no problem taking billions of dollars of free money as bailout in 2008 are now the biggest banks that are resistant to helping small businesses,” Joseph Amato, the SBA's Nevada district director, said in a Monday teleconference about the Paycheck Protection Program.