Biden highlights small-business help, as problems persist with lending program

By Stacy Cowley and Jim Tankersley

President Joe Biden dropped by a flooring company in the Philadelphia suburbs Tuesday to promote an assortment of measures in his $1.9 trillion aid package that are aimed at helping small employers and their workers endure the pandemic’s economic shocks.

But Biden’s most immediate and sweeping small-business initiative — changes he made last month to the Paycheck Protection Program — has been mired in logistical challenges. With the relief program scheduled to end in just two weeks, the effect of his modifications will be blunted unless Congress extends it.

Last month, Biden abruptly altered the rules of the $687 billion program to make business owners who employ only themselves eligible for more money. The move was intended to address a clear racial and gender disparity in the relief effort: Female and minority owners, who are much more likely to run tiny businesses than larger ones, were disproportionately hobbled by an earlier rule that based the size of sole proprietors’ loans on their annual profit.

Many companies were shut out of the program because of that restriction, while others got loans as small as $1. The administration switched to a more forgiving formula that lets those businesses instead use their gross income, a change that significantly increased the money available to millions of business owners. Its implementation, though, has been a mess.

The program’s government-backed loans are made by banks. The largest lender, JPMorgan Chase, refused to make the change, saying it lacked the time to update its systems before March 31, the program’s scheduled end date. The second-largest lender, Bank of America, decided to update all of its applications manually, causing anxiety and confusion among its borrowers. Wells Fargo released its revised application Tuesday and told borrowers with pending applications that they had just three days to reapply using the new form.

Compounding the problem is that Biden’s change was not retroactive, which has prompted backlash from the hundreds of thousands of borrowers who got much smaller loans than they would now qualify for. Many have used social media or written to government officials to vent their anger.

JagMohan Dilawri, a self-employed chauffeur in Queens, got a $1,900 loan in February. Under the new rules, he calculates that he would have been eligible for around $15,000. That wide gulf frustrated Dilawri, who has struggled to keep up on his mortgage, car loan and auto insurance payments since the pandemic took hold.

“When the Biden administration came, they said, ‘We will be fair with everyone,’” he said. “But this is unfair.”

Officials at the Small Business Administration, which manages the program, said only Congress could fix that disparity. Absent legislative action, loans that were completed before the rule was revised “cannot be changed or canceled,” said Matthew Coleman, an agency spokesman.

On Tuesday, the Senate confirmed Biden’s nominee to run the Small Business Administration, Isabel Guzman, by an 81-17 vote.

Despite the concerns, Biden was met with praise in Chester, Pennsylvania, when he visited Smith Flooring, a Black-owned business that supplies and installs flooring. White House officials said the shop cut payroll over the last year, from 22 union employees to 12, after revenues declined by 20% during the pandemic. It has survived, the officials said, thanks in part to two rounds of loans from the Paycheck Protection Program, which Congress established last year during the Trump administration to help small businesses.

Biden’s aid bill, signed last week, added $7 billion to the program and funded others to help struggling businesses, including a $28 billion grant fund for restaurants. The law also set aside additional money for other relief efforts run by the Small Business Administration, including a long-delayed grant program for music clubs and other live-event businesses, which the agency said would start accepting applications early next month.

Lenders are scrambling to carry out the administration’s changes to the Paycheck Protection Program and finish processing a flood of applications before March 31. The American Institute of Certified Public Accountants called the deadline “unrealistic,” and 10 banking groups sent a letter to lawmakers urging Congress to give them more time.

Advocacy groups are also calling, with increasing urgency, for both an extension and a fix to make the rule change for sole proprietors retroactive.

“We absolutely need those changes,” said Ashley Harrington, the federal advocacy director at the Center for Responsible Lending. In December, Congress made retroactive changes to Paycheck Protection Program loans for farmers that allowed those borrowers to recalculate and increase previously finalized loans.

“To have that change be made for one group and not be made for another — especially for a group that has so many Black and Latino business owners that have struggled so much in this crisis — really raised alarms and red flags for us,” Harrington said.

Some key Democratic lawmakers said they were willing to extend the date. Rep. Nydia M. Velázquez, D-N.Y., who leads the House Small Business Committee, said she was working with the Small Business Administration and congressional Republicans “to find a path forward, whether that be through agency action or additional legislation.”

“For those sole proprietors who applied before the new rules took effect, we understand their concerns and are eager to work with Congress to resolve them,” said Bharat Ramamurti, the deputy director of the National Economic Council and the White House’s point person on the relief program.

Ramamurti said that “tens of thousands” of loans had been approved by around 4,000 lenders using the new formula, and that some large lenders — including the online lender Biz2Credit and two banks, Cross River Bank and Customers Bank, that make loans for dozens of partner companies — said they had successfully made the needed updates.

While the program still has two weeks left, the big banks are already shutting down. Bank of America stopped accepting new applications last week, and Chase plans to close its application system on Friday.

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