Dive Brief:

• The Small Business Administration (SBA) restricted Paycheck Protection Program (PPP) applications to lenders with less than $1 billion in assets from 4 p.m. Wednesday to midnight.

• The agency, which is in charge of the second $320 billion small-business coronavirus relief program, said it would evaluate whether to reserve additional processing time for smaller lenders in the future.

• "SBA is working to ensure that all eligible small businesses have access to this funding to sustain their businesses and keep their employees on payroll," the SBA said in a statement.

Dive Insight:

The demand for PPP loans has lenders large and small worried they won't be able to help all their applicants collect much-needed relief before the funds run out. The first $350 billion round, which launched April 3, was depleted in less than two weeks. 

Large banks took issue with the SBA’s announcement, while small banks expressed support.

"Frankly, allowing community banks under $1 billion is one of the best ways to ensure small mom-and-pop businesses get PPP funding vs. the LA Lakers," Paul Merski, group vice president for congressional relations at the Independent Community Bankers of America, told Politico.

Faced with public outcry, the NBA team, reportedly worth $4.4 billion, said it returned its $4.6 million PPP loan Monday night, according to CNN.

"Welcome to a more level playing field big fella's," Grand Rapids State Bank President, CEO and Chairman Noah Wilcox tweeted Wednesday. "Buck up and quit whining!"

But small banks are not the only lenders that serve small businesses. 

"Many small businesses went to banks over $1 billion to help provide for their family," Richard Hunt, president and CEO of the Consumer Bankers Association, tweeted Wednesday, adding small banks were also given a $60 billion carveout in the second round. "Don't play favorites with small businesses. All need a lifeline right now."

The Financial Services Forum (FSF), which represents some of the country's largest banks, including JPMorgan Chase, Bank of America and Wells Fargo, said the decision to block access to large lenders will delay relief for "potentially thousands of small business owners and their employees."

"A better solution would be a fully operational system that allows banks of all sizes to provide support to Main Street," FSF President and CEO Kevin Fromer said in a statement.

"It makes sense to give a leg-up to community lenders who may treat customers more equitably," said Amanda Fischer, policy director for the Washington Center for Equitable Growth, referring to reports that some large banks gave preferential treatment to wealthier clients in the first round. "However, a better way of accomplishing the goal of helping the neediest small businesses may have been to advantage applications by loan size, rather than bank size, which is an imperfect proxy."

The first round of small-business rescue funding privileged the middle of the country versus the coastal areas, Fischer said, citing an analysis by the Washington Center for Equitable Growth.

"The smallest of small businesses on the coasts — which tend to have less access to community banks — may lose out with the SBA’s choice," Fischer told Banking Dive.

The SBA said it approved more than 960,000 PPP loans worth more than $90 billion from over 5,300 lenders as of 5 p.m. Wednesday​.