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Baltimore-area small businesses complain of continuing problems gaining access to federal lending program

Small businesses in Maryland and elsewhere that have complained of unfairly being locked out of a federal coronavirus relief program say problems persist, leaving some wondering whether they will survive the pandemic crisis.

Some businesses that applied to the $349 billion Paycheck Protection Program through Bank of America say the lender gave existing borrowers the first shot at applying for the first-come, first-served funds, prompting a Baltimore public relations firm to file a class-action suit against the bank late Friday.

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And on Sunday, Wells Fargo Bank said it is focusing on only two segments of customers, small businesses with fewer than 50 employees and nonprofits, and believes it already has reached its capacity to lend under the program.

The program, part of the $2 trillion coronavirus aid package passed by Congress, offers federally backed loans of up to $10 million to employers with fewer than 500 workers. Businesses must apply through a participating SBA lender, bank or credit union.

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Since the program opened Friday, unexpected snags have spurred a growing chorus of criticism from businesses as well as federal and local officials.

“What we’re seeing is a number of banks imposing requirements on borrowers that are not part of the law,” Maryland Sen. Chris Van Hollen, a Democrat, said Monday. “Banks are in some cases inventing their own conditions that create barriers to small business and nonprofits, which is not right.”

Van Hollen said he has heard from more than 100 small businesses in Maryland that have had problems getting access to loans or have other concerns.

Van Hollen and Rep. David Trone, a Democrat representing Maryland’s 6th Congressional District, alerted Treasury Secretary Steven T. Mnuchin about those difficulties in a letter sent Monday.

“For example, some financial institutions have required that businesses have an existing line of credit or a credit card account in order to obtain a loan,” they said in the letter. “Imposition of such requirements, which are outside the purpose of the program, are unnecessary at best and, in the case of some of our constituents, harmful to their ability to access the program.”

After complaints began to surface Friday, Bank of America announced changes to its application process designed to broaden access.

But that has not fixed the problems, say attorneys for Profiles, the Baltimore-based public relations firm named as a lead plaintiff in the class-action lawsuit against Bank of America. The attorneys say they have heard from small-business people all over the country who have been denied access to loans and expect the class to grow to include several thousand companies.

The bank “had no authority to place gating requirements and conditions not found in ... the federal loan program, but they did,” said Alan M. Rifkin, managing partner of Rifkin Weiner Livingston, which filed the lawsuit Friday in U.S. District Court in Baltimore.

Several hours after beginning to take applications, bank officials explained they wanted to first focus on clients with business depository and lending relationships but planned to expand to small-business customers who are not borrowers.

A bank spokesman said Monday that it had no comment on the lawsuit.

“As you know, we broadened the group of clients who could apply as of Saturday morning,” said Bill Halldin, the spokesman. "We are focused now on processing more than 180,000 applications received since we began accepting applications just three days ago."

Yasmin Young, the owner of Diaspora Salon, a hair salon on North Charles Street, said Monday that she is joining the class-action lawsuit as a co-lead plaintiff.

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“This would normally be the busiest time of the year for us,” said Young, who had to shut the five-year-old salon down at the end of March and lay off herself and her single employee.

Young said she applied for a loan through the Paycheck Protection Program with Bank of America, where she has been a business customer for six years but was told she didn’t qualify because she was not a borrower. After the bank changed its policy, she found she still did not qualify because she had credit cards with other banks.

She found this out only after submitting her application and then checking its status. She has not been able to reach anyone at the bank for clarity. She wanted to use the loan to bring herself and her employee off unemployment and pay rent and utilities.

“I’m extremely concerned because my lease is up,” she said. “I have other bills I have to pay for my business, and we have zero income. I really didn’t expect it to last this long. ... Simply because of my bank, I’m locked out."

Amy Elias, CEO and founder of the 10-employee Profiles, had a similar experience. She said she had worked with a representative of the bank, where she has had business and personal accounts for decades, to compile all of the necessary documents, such as payroll reports and quarterly payroll tax reports.

But after submitting her name and the name of her business through the online application Friday morning she got an on-screen message saying she must have a small-business checking account and small-business lending relationship, such as a credit card, to apply.

“This program was a lifeline,” Elias said Friday. "It is not right that Bank of America gets to decide who sinks and who swims.”

In their letter to the treasury secretary, Van Hollen and Trone asked the department to prohibit lenders from imposing loan requirements outside the scope of the CARES act. They asked for adjusted guidelines to better reflect the law. For instance, they’ve asked to extend the time to repay the portion of the loan that is not forgivable from two years to the 10 years set out in the law. And they’ve asked for more flexibility in the amount of the loan that can be used for fixed costs.

Manny Kazan, owner of Glen Burnie-based Driving Record Facilities, a family business that provides information from public records to attorneys and insurance companies, has seen its business drop by half during the coronavirus crisis.

Kazan, a longtime Bank of America customer, said he was blocked from the loan application site initially and tried to prepare his two longtime employees for the possibility of a layoff. Only after a series of phone calls to the bank and the U.S. Small Business Administration and visits to a local branch, Kazan said he finally was able to submit his application. He’s now gathering all the documents required.

Kazan said he got a call from a bank representative to apologize for the ordeal, but only after he emailed a letter to the bank’s CEO Brian Moynihan.

It said: “The bank’s over zealousness has caused great emotional pain to me and my two employees. Does anybody understand how cruel this is at a time of such uncertainty?"

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