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Banks press Treasury, SBA to fix ‘systemic’ small business loan glitches

Published: (Updated: ) in USA news by .

Banks on Monday warned the Biden administration that the restart of the government’s massive small business rescue program is facing significant operational problems.

Banks on Monday warned the Biden administration that the restart of the government's massive small business rescue program is facing significant operational problems preventing many employers from receiving aid.

In a letter to the Small Business Administration and the Treasury Department, American Bankers Association President and CEO Rob Nichols flagged a "technical error" with the software portal that lenders must use to submit applications for businesses seeking Paycheck Protection Program loans. The SBA relaunched the forgivable loan program on Jan. 11 with more than $284 billion in new funding.

Widespread technical problems plagued the first iteration of the program last spring as the SBA struggled to launch a nationwide business rescue on a scale far larger than anything it had done before. The agency’s loan-processing systems were susceptible to glitches as lenders submitted huge volumes of loan applications.

In the latest version of the popular program, the SBA worked with a contractor to develop a whole new interface for banks. While it appears to be working more smoothly than before, Monday’s letter showed that lenders are facing a whole new set of technical issues.

The issue concerns applications for businesses that received PPP loans last year and are now applying for a second round of aid, which was authorized under economic relief legislation enacted in December.

Nichols said the Paycheck Protection application portal was not allowing banks to submit second-draw loan applications if a business previously applied to have its first PPP loan forgiven and that application is still pending with SBA. It's a problem because the program's rules don't require forgiveness of the initial loan as a prerequisite for seeking a second loan.

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"This technical error is leading SBA not to approve a significant number of Second Draw Loans," Nichols said in the letter. "We urge SBA to fix this technical error and permit a lender to upload a borrower’s second draw PPP loan application irrespective of the status of the borrower’s First Draw Loan forgiveness application."

In the letter, Nichols said the bankers' group was trying to flag problems "that we believe are systemic and require the immediate attention of your agencies to ensure struggling small businesses can access this important federal lifeline."

He also cited concerns that lenders are receiving a high number of incorrect error messages when they support PPP loan applications through the SBA's portal, including messages that state incorrect limitations on loan amounts or that a borrower's first PPP loan is under review when it is not.

"Additionally, attempts to get clarification by lenders via the portal’s messaging system have been met with silence," Nichols said.

Spokespeople for the SBA and Treasury did not immediately respond to requests for comment.

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