WASHINGTON (Reuters) – The Small Business Administration on Wednesday said it would be temporarily closing its Paycheck Protection Program (PPP) for small businesses hurt by the novel coronavirus to all but the country’s smallest lenders, in a bid to give them fair access.
The agency said it would only accept loans from banks with assets of $1 billion or fewer as of 4 p.m. EDT (2000 GMT) on Wednesday, lasting through to midnight.
“SBA and Treasury will evaluate whether to create a similar reserved time again in the future,” the SBA said.
The move appeared to be aimed at addressing fears that very small banks, and lenders that predominantly serve businesses owned by people of color, would have to compete with big banks for the program’s more than $310 billion pot of cash, after they exhausted a pot of money ring-fenced for them on Tuesday.
There are approximately 3,862 commercial banks with assets of less than $1 billion, according to regulatory data as of 2019, although many credit unions and other small community lenders would also be small enough to use the new reserve window.
But the decision is likely to anger big banks such as Wells Fargo (WFC.N), Bank of America (BAC.N), Citi (C.N) and JPMorgan (JMP.N), which are sitting on hundreds of thousands of applications from small businesses.
The last-minute SBA change is the latest twist for the program, which has been beset by technology and paperwork issues, and subject to intense scrutiny following reports some large companies and hedge funds wrongfully secured loans.
U.S. bankers began another race to grab $310 billion in fresh small-business aid released by the SBA on Monday, after the program’s first $349 billion in funds was exhausted in less than two weeks.
Created as part of a $2.3 trillion congressional economic relief package, the program allows small businesses hurt by the epidemic to apply for government-guaranteed, forgivable loans with participating banks.
During the second round, Congress ring-fenced $30 billion of the funds for banks with less than $10 billion in assets and other community lending groups which predominantly service minority-owned businesses, amid fears that the country’s biggest banks would suck up the funds.
With so much pent-up demand, that pot of cash was exhausted on Tuesday, requiring smaller lenders that didn’t get through to compete with larger firms for loans.
Reuters reported on Wednesday that community banking groups and minority-owned banks said they are worried businesses owned by people of color may miss out on much-needed loans as a result.
Reporting by Michelle Price; additional reporting by Pete Schroeder; Editing by Chris Reese and Jonathan Oatis