Lendio, Ready Capital PPP Leaves Small Business Owners Waiting: No One Funded for PPP Yet (Updated 5/5)

Update on 4/24/2020, 7:00 PM Central. A Lendio representative said that they are currently overburdened with applications, but that people have been funded and that funding occurs approximately two business days after documents have been signed. However, he couldn’t give me an estimate regarding how long it takes to get documents in hand. Updates will follow as I learn more.

Update on 4/28/2020, 2:00 AM Central. As of now, two people on Reddit have come forward to state that they have acquired PPP loans through Ready Capital. One had submitted their application on 4/4 and been approved on 4/15; They were funded on 4/27. Another had signed documents on Friday (which many people report doing) and funds were pending as of this morning, 4/28. These reports cannot be verified, but does give some hope to those who are still waiting. Ready Capital remains responsive on FB to those who want to inquire about the status of their loans.

Update on 5/5/2020, 3:00 AM Central. Lendio, Ready Capital (and their subsidiary Knight Capital) have reached out to Customers Bank to fund their loans. Many people have been funded, and looking into the future, it’s my personal belief that everyone with a Round 1 SBA number is likely going to be funded by the end of the week. It’s been a wild, bumpy ride, but it does look as though Lendio/Ready Capital are going to come through.

Further, a correction — before any legal action could be levied against Lendio or Ready Capital, borrowers would need to contend with the arbitration clause in their contracts.

There have been very real issues with this process. It has taken weeks longer than the process at other banks. Some businesses have shut down while waiting. And communication has been erratic at best. But now it’s time to shift gears — many of us are going to need to stop feverishly checking our inboxes and start making plans for the future.

If you’ve been following what’s been happening with the Paycheck Protection Program (PPP), you know it’s been a rollercoaster ride of epic proportions. Small business owners are exhausted, confused, and ready to give up hope — and it seems as though one of their last hopes may be ready to collapse on them.

First, Some Good News: Another Round of PPP Has Been Funded

Not only has another round of PPP been funded, but large corporations such as Ruth’s Chris have been ordered to give their funding back. The SBA has pointed out that language within the PPP required that a business not have alternative funding options available.

As high capital companies such as Ruth’s Chris obviously did have other funding options available, they will need to give their funding back or risk penalties. Shake Shack had already given their funds back after public pressure and Ruth’s Chris is reportedly doing so as well. All these funds go back into the public pool.

This would be good news, but there’s another drama emerging.

Lendio and Ready Capital Fail to Fund Round 1 PPP Loans On Time

Lendio had the 15th most volume with PPP loans — and also the smallest average size of loans. It was being heralded as the champion of true small business, and many of those who were rejected from other banks were accepted almost immediately through Lendio’s partners.

Lendio itself is not a bank, but instead works in cooperation with banks such as Ready Capital and Knight Capital. Unfortunately, it looks like Lendio’s fast processing may have been too good to be true.

Here’s how SBA loans work. The lender vets an application thoroughly, then submits it to the SBA. The SBA approves (or rejects) the loan based on the application documents submitted. The lender then sends documents to the borrower, and the loan is finalized.

It appears as though Lendio was sending documents directly to the SBA before vetting the applications. They were consequently able to approve loans much faster. Unfortunately, it also means that they are back-logged now.

Not a single person has reported being funded through Lendio, even though Lendio itself claims that thousands have been.

And Here’s the Problem…

When someone gains an SBA approval, they can no longer work with another lender. They are locked into the lender that got SBA approval. Thus, if someone had an application with Lendio and PayPal, and Lendio moved first, their PayPal application would be automatically rejected. Unfortunate for that borrower, because PayPal has reportedly been funding within a few days.

Moreover, SBA approvals only last 10 calendar days. Lendio has repeatedly stated these are 10 “business days,” which is inaccurate.

This puts business owners in a particularly untenable situation. Not only are they locked out from getting funding through a bank that can actually fund them, but they may find themselves losing their place in line entirely. Since the new PPP funds are already spoken for by those on the wait list, this means that business owners who were accepted for Round 1 funding may not get funding at all.

Lendio’s Statement Regarding the Delays

Below is Lendio’s statement regarding the delays:

For those that have already received your funding, congratulations! We hope that you’ll be able to use the capital to quickly save jobs and keep your doors open.

As of 4/24, no one on Twitter or on the r/smallbusiness subreddit has received funding.

For those of you that haven’t….

We understand you are anxiously waiting to close your loan with Ready Capital. Having talked with thousands of business owners over the past few weeks, we know how desperately needed these relief funds are. In less than a month, we have helped over 70,000 business owners get SBA confirmation numbers, but now comes the painful process of waiting on lenders to validate and approve funds.

It appears as though Lendio prioritized getting SBA numbers rather than validating forms. This means that many of the people who have SBA numbers may actually fail the document check, especially those with unconventional businesses such as independent contractors.

In an effort to be as transparent as possible, and until we receive clear communication from the SBA on timing, here are some FAQs on the process as we understand it:

We know that lenders across the country are working overtime to process and fund the historic volume of approved PPP loans. As of last night, unfortunately, only 5% of small business owners in America had received funds in their bank accounts from all lenders.

As of today, thousands of business owners who came to Lendio have been funded, with more and more being funded each day.

Again, no business owners have come forward to say they have been funded through Lendio, though many have remarked they’ve been funded through PayPal and other venues.

Ready Capital has assured our team that they are doing everything possible to fund each loan within 10 days. They have 500 agents — including 200 newly hired — working as fast as they can to validate, gather voided checks and closing docs, and fund. But having said that, they must work each application one by one.

Some people have reported that they’ve had document requests, but still no funds have emerged, leading to speculation that Ready Capital’s capital wasn’t ready.

It is our hope that every loan is funded within the 10 days, but if not, what happens?

We are hearing that many lenders are in the exact same boat — scrambling to meet the 10-day deadline. According to our sources, we believe the US Treasury will be releasing new guidelines on the 10-day rule “very soon.”

Based on the limited information that the SBA has provided, our understanding is that the applicant will maintain their SBA confirmation # and will continue to work with the lender to complete the funding process as quickly as possible. In other words, nothing happens — your SBA confirmation # does not expire, you still have your loan approved, and you don’t need to re-apply.

This is an extraordinarily bold claim that follows “based on the limited information” and “our understanding.”

There is recent precedence with the SBA not meeting the pre-defined funding window. When the SBA released the EIDL grant application, they said the grant would be funded within three days of applying. Three days came and went without any of the millions of small businesses getting those funds. Now, three weeks later, money is just beginning to hit the accounts of those who applied.

This situation is vastly different and doesn’t even bear comparison. The SBA did not meet its own pre-defined funding window, but chose to still give out its own grants. Compare this to the current situation, in which Lendio has failed to complete due diligence, and is allowing its requests to expire.

While we cannot speak on behalf of Ready Capital, we are doing everything we can to support and assist them during the process. We ask for as much patience as you can give us, with the knowledge that loans are getting funded. Ready Capital is acting in good faith and will fund every loan as quickly as possible.

Interestingly, while Lendio has sent out multiple updates, Ready Capital has been silent. Business owners report that the phone will ring for hours and is never answered.

Lendio is grateful to its lending partners for electing to fund small businesses with whom they did not already have a business relationship. And we are grateful for the applicants who entrusted us to help them navigate this complicated process. Please accept our assurance that we will communicate any new guidelines on the 10-day rule as soon as they are made available.

So, there you have it. One of the very few lenders that was open to those without prior existing relationships — one of the very few lenders that was able to take on truly small businesses — appears to be staggering at the last mile, and leaving business owners in worse situations than when they started.

Lendio (or, Rather, Ready Capital) Could Still Fund

None of this is to say that Ready Capital isn’t going to fund these loans. But the situation is delicate. First, most people who were accepted through Ready Capital are going to see their SBA approvals expire over the weekend, and no one knows what that means. Second, Ready Capital hasn’t shown that they even have the funds to disburse.

If Ready Capital is unable to fund, business owners are going to be in a dramatically negative situation. They are going to have lost out on their chance to get a PPP loan even though the SBA would have approved their loan.

On the other hand, even if Ready Capital is able to fund, it’s going to be doing so about two weeks later than PayPal was reportedly funding its loans. Regardless, it appears that the majority of these delays were caused by loan officers pushing through as many SBA confirmations as they could before doing their own due diligence.