My experience with the CARES Act was frustrating, confusing and unfair


Image Credits: Malte Mueller (opens in a new window) / Getty Images

Suzanne Borders


Suzanne is the CEO and co-founder of BadVR. She thrives at the intersection of data, art, technology and poetry.

As a small business owner, I was excited to learn about the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act that offers low-interest loans to firms impacted by the COVID-19 pandemic. However, as I read through the details and began to apply, it became clear that this legislation — while well-intentioned — may not be enough to help many SMBs and startups.

Here’s a quick recap of my experience.

Emergency Economic Injury Grants and Economic Injury Disaster Loans

First and foremost: You need to act swiftly. Emergency Economic Injury Grant and Economic Injury Disaster Loan programs included in the CARES Act function on a first-come, first-served basis, and are funded from a limited pool of resources.

I began my company’s application process by submitting our EIDL and EEIG applications through the SBA website. This was easy, if tedious. It took about two hours to complete the necessary online forms and about two seconds to click the EEIG checkbox. Submission was seamless, but I haven’t received any further communication from the SBA since completing my application, which is a bit confusing — EEIG funds are supposed to be dispersed within 3-5 days of the submission date.

However, I know there’s been a huge volume of submissions recently and this must be exceptionally difficult to handle. I look forward to any email correspondence or updates from the SBA that might give me — and other applicants — an updated estimate of the expected dispersal timeline.

Paycheck Protection Program

Unfortunately, the ease of the EIDL submission was completely reversed when it came to the Paycheck Protection Program loan application, which proved to be exceptionally difficult and time-consuming.

With one or two exceptions, major banks in America only offered PPP loans to existing customers who carried active credit lines. Some banks, including my own, did not even offer customers the ability to apply for PPP loans. None of the banks I spoke to ever even offered PPP loans for independent contractors or sole proprietorships, despite the CARES Act’s claim that such loans would be available to them starting April 10, 2020.

Because my company’s bank did not offer PPP loans and refused to share a date by which they would open applications, I had to scramble to find a new lender. Unfortunately, most banks refused to process applications from non-account holders and required applicants to have an established relationship on or before February 15, 2020, which prevented me from submitting.

Most remaining options required that I open an account with them prior to submitting a PPP loan application. This created a problem because the process of opening a new account was time-consuming and the longer I waited to submit an application, the less likely I was to receive it. For example, banks such as Wells Fargo maxed out their loan pools within hours of opening applications, and as of this writing the entire PPP loan funding pool has run dry [Editor’s note: the House just passed a bill to replenish the PPP fund with $310 billion].

Finding a new bank — and a solution

With such limited options, it took my executive team about a week to find a couple of viable solutions. After being turned away from all major banks in our area, we were able to finally submit our PPP loan application after using the lender finding tool to find alternative lenders. My CTO wrote a snippet of code that extracted the data for each lender within 100 miles of our location, excluding banks we had already contacted. This gave us a list of 2,000 options we split between myself and the CFO.

We reached out to 100-150 banks and credit unions per day: 80% told us we needed to have an existing account to apply, 10% told us we could create a new account and apply but that it’d take a couple of days to do so and the remaining 10% were either wrong numbers, out of business or continual busy signals.

Several days into this process, we still had no real viable options, so we created a new account with a willing bank I selected because most of its account holders were VC-funded startups ineligible for PPP loans. This meant fewer overall applications to process, therefore a higher likelihood of available funds for us.

Creating our new account took longer than expected, so I searched Google for a Plan B. Eventually, I happened across a very helpful list of banks that were taking applications from non-account holders. It took about 30 minutes to connect with a bank that would process our PPP loan without an existing relationship — they hadn’t processed many PPP loans already and had plenty of funds still available. Success!

Within four hours of securing a lender, my executive team and I downloaded the PPP loan forms and completed the submission via email. Once we found a willing bank, the process was relatively simple. The PPP loan application was very similar to the EIDL application, so we already had many of the necessary documents on hand. We also ended up submitting application documents through the other bank with whom we had created a new account. Both applications were received by the lenders, although only the latter ended up approved.

Challenges and solutions

The biggest challenge with the PPP loan application wasn’t the process itself, but rather the entity through which the application was processed. Because the EIDL application is submitted through the web portal, it was reliable and simple to complete. For PPP, due to the requirement that banks and other lenders act as intermediaries, the application process was faulty and unevenly executed. Luck ended up playing a large role in the process. Applicants with banks who opened up applications early had a better chance at receiving funds, while others like me struggled to find a lender willing to process our applications.

To complicate things further, I was told by many banks that they were prioritizing applications of larger account holders who transacted above $1-5 million, offering PPP loans as an incentive rather than a lifeline. It also appeared that banks were prioritizing the applications of businesses that had existing loans, essentially creating their own bailout system, ensuring the financial solvency of their current debtors, thereby lessening their risk of defaults.

All of this is incredibly frustrating, given the stated goal of the CARES Act, which is to provide financial assistance to small companies. Unfortunately, given these choices by banks, true small businesses were a disadvantage, while larger organizations were given priority. The involvement of a middleman — private banks and lenders — sullied the good intentions of the CARES Act. Because of these middlemen, the application process became tiered and access to funding wasn’t determined according to need, but by luck or financial ability — an unfair and unfortunate situation.

Luckily, all of this can be fixed if private lenders and banks are removed from, or regulated through, the PPP loan application process. This would help ensure transparency and fairness with regard to how applications are processed and applicants chosen. Moving forward, I hope adjustments can be made to help address these issues.

Final outcome

Since applying for our PPP loan, it was announced that the funding pool for these loans had been exhausted. Within weeks of the program’s launch, the volume of applications was so large that the $349 billion pool had run dry. Unfortunately, many of the businesses funded from this initial pool were not traditional small businesses, but instead large organizations like Shake Shack and Ruth’s Chris Steakhouse.

A last-minute change to the SBA’s definition of small businesses allowed larger companies to qualify for this funding program, despite being nationwide franchises. Given the large amounts approved for such applicants, it’s no surprise that the fund was depleted quickly, while thousands of traditional small businesses were unable to even submit applications.

Many large banks appeared to be the worst offenders when it came to prioritizing PPP loan applications based on existing relationships and loans, while smaller, local credit unions issued the most loans, in the most equitable way. Most small businesses that successfully secured PPP funding did so through such credit unions.

As for my company, our application barely squeaked through prior to the fund’s depletion. I’m incredibly thankful that we were able to submit and receive approval days before this unfortunate event. Many small businesses weren’t as fortunate.

Multiple banks told me that all unsubmitted applications will be processed and potentially funded in the order they were received if Congress were to approve a second funding pool. However, in light of the eligibility requirements, I’m skeptical that banks and other lenders will truly follow a first-come, first-served process.

Lessons learned

Prepare all your documents before you apply

It goes without saying that you should be prepared with all necessary documentation before beginning the application process. Start with the EIDL, as your EIDL application is part of the required PPP loan application documentation. Other necessary documents include a voided check from your business checking account, the face page of your company’s most recent tax returns, 2019 IRS form 941 or 944, a copy of all company owners’ driver licenses, your operating agreement/DBA filing and a payroll processing report.

The EIDL and PPP loan processes are very similar, so once your documents are ready, you’ll be able to get through both of them relatively easily. The applications themselves are lengthy, so give yourself 4+ hours to complete them both.

Choose your bank or credit union wisely

Unfortunately, given pre-existing relationship restrictions, bank choice is largely luck of the draw — if you used a major bank that opened up PPP applications early, you chose well. If your bank waited a long time to open up PPP applications, you made the wrong choice and I’d strongly suggest moving your business elsewhere. It’s rumored that banks that did not openly accept applications are quietly processing applications for their larger accounts — don’t support behavior like this.

Local credit unions appear to have processed the vast majority of applications for true small businesses. I strongly suggest checking out credit unions in your area and possibly opening an account with one of them in anticipation of a second funding round. If you have issues finding a lender, I highly recommend this SBA lender finding tool.

If you do plan to move to a new bank or credit union, be sure to ask how they plan to handle PPP applications moving forward. How do they plan to process applications? How many outstanding applications are in their queue? How many more do they plan to accept? The answers you receive will affect the success of your company’s PPP loan.

Don’t take “no” for an answer

As the saying goes: The squeaky wheel gets the grease.

There’s absolutely no harm in being proactive; it’s what helped ensure my company’s loan. This includes following up with lenders, pushing for answers to important questions and refusing to accept brush-offs. It’s also important to ask your lender questions until you get a satisfactory answer. Often, you’ll need to ask several times before you’ll get any real response, so don’t be afraid to keep asking or escalating up the management chain. No one will advocate or help your company but you — so take the initiative and fight for your business!

Have a Plan B (and C)

Doggedly continue to search for a lender if you’re in need.

Submit paperwork to multiple lenders to increase the odds of a successful submission. Always make sure you’re able to recall a submission, or stop it if needed, in the case that multiple applications actually achieve a successful submission. Even though a second fund has been approved, funding will remain limited and available on a first-come, first-served basis. It’s important to act quickly, have multiple contingency plans and be aggressive with your follow up. This means developing backup plans and acting on them as soon as PPP loan applications reopen. Otherwise, you’ll risk getting shut out of these absolutely critical financial assistance programs.

The CARES Act was created to provide much-needed financial relief to small businesses suffering from the economic impact of COVID-19. While well-intentioned, the reality of its implementation has been frustrating, confusing and deeply unfair.

I sincerely hope these problems are addressed soon and that access to these lifesaving loans and grants is made available in a more equitable way to those who need them most — small businesses.

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