“These funds were supposedly earmarked for us,” said Joelle Ray, who was waiting for the loan money to maintain a hair salon she owns in Raleigh, North Carolina. “Why can’t we have them?”
The situation has heightened the concerns of small business owners struggling to stay afloat and keep their employees paid during the Covid-19 pandemic. This added to concerns about the functionality of the Paycheck Protection Program, which got off to a hasty and difficult start on April 3 but has proven to be extremely popular, in large part because loans can be canceled if companies maintain their payroll.
A number of small businesses that have turned to Lendio – a fintech start-up – have done so after being unable to move forward with larger lenders, like Bank of America, which has limited the types. clients she would accept at the start of the program.
“I thought it would be more efficient to use fintech processes and automated systems,” said John Nahas, who works in the fintech industry and applied for a loan through Lendio for a Los Angeles-area restaurant that ‘he owns and operates. “It turned out to be quite the opposite.”
According to interviews with several borrowers and a review of emails sent by Lendio and Ready Capital, clients who turned to Lendio when the program launched were notified on April 16 that they had been approved and received numbers. SBA loan to be confirmed.
“It means funds have been earmarked for you,” Lendio told clients. “The lender will work with you over the next few days to collect any data or documents related to the final underwriting and closing process.”
But for customers who have been routed through Ready Capital, this has not happened. In the days and weeks that followed, they struggled to get companies meaningful information about what was going on and received mostly vague email updates.
They took to social media, dotting Lendio and Ready Capital on Twitter and Facebook with questions about the status of their loans. An April 24 post on Facebook by Ready Capital, in which it claimed it was grappling with extreme volumes of calls and emails, drew 2,000 comments as borrowers pleaded with the company to ‘obtain informations.
What they didn’t know was that Ready Capital itself – a non-bank lender that had partnered with Lendio in the past – was struggling to follow through on loans it approved through. the SBA.
In a statement to POLITICO on Wednesday, Ready Capital COO Gary Taylor cited delays caused by “outside factors,” including changes to SBA guidelines on how companies without employees should check salary data. He said Ready Capital had accepted more than 40,000 applications through its website and referral sources such as Lendio and that its average loan size was $ 73,000, below the overall average for the program. He said this reflected the company’s support for “real small businesses” such as local delicatessens and nail salons.
The SBA’s new salary documentation guidelines, released after Ready Capital submitted its clients’ requests, “hit us and our borrowers the most because we had over 9,000 sole proprietorships, forcing us to going back to our candidates and requesting additional documents, which contributed to the delays. “
Lendio CEO Brock Blake also cited in an interview the delays the lender has faced due to documentation barriers with sole proprietors and other small employers. He also pointed to regulations specific to Ready Capital and its lack of access to a Federal Reserve liquidity facility designed to facilitate loan distribution by lenders.
“Because of some of these dynamics, Ready Capital is in a very difficult situation,” said Blake. “And they weren’t the only ones.”
Last week, Ready Capital partnered with another lender – Customers Bank – to take responsibility for lending money to pending borrowers.
Customers Bank said it had funded $ 1.3 billion in loans since its takeover. Blake said he expected Customers Bank to finish dealing with the backlog in the coming days.
In the initial phase of the paycheck protection program, Ready Capital processed about 30,000 of the 70,000 loans approved through Lendio, Blake said. About 15,000 to 20,000 of those Ready Capital loans have yet to be funded, he added.
The SBA declined to comment for this story, although business owners who discussed their situation with POLITICO said they spoke with officials at the agency. A spokesperson for the SBA Inspector General’s office declined to comment on the specific situation, but said the office was aware of individual concerns about disbursement delays.
Nahas, the Los Angeles-area restaurateur whose frustration reached the point where he confronted Blake on Twitter on Tuesday, said Wednesday that Ready Capital contacted him for the first time in three weeks asking him to resubmit documents.
“I felt my candidacy was being held hostage,” he said. “We received premature approval. We couldn’t go anywhere else and get financing. So we’re at the mercy anytime Ready Capital can contact us to process our loan.”