Several observations on the eve of Day 3 Round 2 of #PPP. The big theme here is that new guidelines from the SBA screwed over smaller regional and community banks, and net-net it’s going to hurt SMBs by extension. 1/n
2/ First and foremost, I deeply admire everyone who is burning the midnight oil to help save SMBs. Across the board, people at the @SBAgov and banks haven't slept in weeks on end. It's an exhausting and herculean effort, and frankly there's really no end in sight right now.
3/ Let's start with this email that was sent Sunday evening before PPP applications reopened. The first thing to note is that the SBA and Treasury are implementing new measures to pace the number of loans processed in the E-Tran system. What does this mean? 
4/ To process a PPP loan, a bank collects application information, the required documentation, reviews/underwrites it in accordance with the guidelines set forth by SBA and Treasury, and then submits it through the SBA's web portal, E-Tran, for approval.
5/ Historically, banks have had to manually key in the application information in E-Tran. This is time-consuming and can range from 15 minutes for an experienced practitioner per app to 30 minutes for a newbie (and at banks, it's all hands on deck, so most are new to the system).
6/ This is a painful undertaking. Today, a majority of banks are uploading applications one at a time to the SBA, manually typing them into E-Tran. Talk to any bank and they're going to tell you E-Tran is the bane of their existence today.
7/ In Round 1, a lot of big banks predicted this and found ways to automate submissions to E-Tran. Some used RPA (bots that completed the manual inputs), some presumably had access to a mysterious SBA API, and others found ways to batch submit hundreds/thousands at a time via XML
8/ As an example, lender #15 on this SBA PPP list is a small non-bank SBA lender with a couple hundred employees that normally does ~400 SBA loans/year. In the past two weeks, they successfully submitted over 40k PPP applications for SBA approval. How?
9/ Simple...they wrote an extraordinarily effective script that automatically submitted applications to the SBA for approval. But the SBA clearly doesn't want lenders to do this anymore in Round 2 lest they skip important underwriting steps, overextend themselves, etc.
10/ Now many other banks heard of this, and community banks who were sick of manually keying things into E-Tran wanted their own versions of RPA magic. Unfortunately, most banks don't have software engineers that can build these capabilities.
11/ So they were forced to hire development firms that price-gouged them and promised amazing solutions. Seriously, I know of a community bank that's paying well over $1M for these services to "license another firm's bots" just so they don't have to manually key into E-Tran.
12/ Why are they doing this? Well, for one, their employees haven't slept in 6 weeks since they've been busy trying to save their customers and this can save them time and sanity. Furthermore, their customers are livid. Over 90% of SMBs did not get funded in Round 1....
13/....and banks have served as the emotional punching bag for irate SMBs who are completely and utterly helpless. They don't want angry customers and are doing everything in their power to service them - even if that means getting robbed by price-gouging development firms.
14/ (As a separate note, the SBA and federal government have done a remarkable job of making banks the scapegoat here and putting the entire onus of stimulus distribution on them, along with all the blame. It's frankly unfair to smaller banks who don't have the capacity to deal.)
15/ So every bank gets ready with their RPA for Round 2 and then they see the Sunday night guidance. Okay, that's fine, instead of being able to RPA their 1k+ backlog of unhappy customers in an hour, maybe it takes the full day. Still, a massive improvement from Round 1.
16/ But, E-Tran doesn't work (surprise!) on Monday. Everyone goes back to manually keying things in, but even that stalls out and small banks maybe can process a handful an hour if they're lucky. CB's are fighting tooth and nail but can't catch a break. nytimes.com/2020/04/27/bus…
17/ And to pour salt in the wound, all of them find out Sunday night that larger banks sitting on more than 15k completed applications can circumvent E-Tran entirely by batch submitting them via XML directly to the SBA!
18/ So a small bank that is desperately trying to serve its SMB customers and only has a couple thousand applications queued up literally has to sit on its hands and wait. Its RPA investment doesn't work because E-Tran is down and big banks are skipping the line.
19/ SBA relents and drops this to 5k applications by mid-day. But not all banks can clear this hurdle, so SBA drops it again. Once again they have to scramble (and figure out what XML means) to compete for their customers' funds in a system that's rigged against them...
20/...and by extension, the majority of SMBs in this country that bank with their local community bank. Not. Cool. At. All. CEOs of these banks are pissed. Employees are pissed. All they want to do is help and stop bearing the brunt of bad news.
21/ And then the coup de grace, the SBA lets them know Tuesday morning RPA is a no go. Millions of dollars in consulting fees and time washed down the toilet for community banks who just wanted to keep up and have a fair shot at helping their customers.
22/ For the first time most community banks are now being told there is some API that might be available to them, and that their best hope is to wait for the SBA to make E-Tran work while they figure out how to create an XML file that the SBA will hopefully accept.
23/ I will say this: this country needs our community banks now more than ever. It's these banks that are going above and beyond for their SMB customers. Finding ways to assist and provide a voice and comfort when SMBs can't get the time of day from their larger counterparts.
24/ It’s critical that small regional banks, community banks, CDFIs, and fintechs are treated as equals in this journey. They’re fighting 24/7 to save SMBs - at least give them the tools they need to succeed bc that’s the only way we maximize the likelihood that SMBs will succeed
25/ Update: SBA creates a window where only banks <$1B AUM can submit to E-Tran today.
