Breaking News
$350B Small Business Lending Program Could Get Off to a Rocky Start
Small business owners can begin accessing over $350 billion in forgivable loans starting Friday. Several major banks, however, say the program will get off to a rough start.
Beginning Friday, small business owners can begin applying for low-interest loans to cover eight weeks’ worth of payroll and other expenses. The government says the loans are forgivable, but businesses have to meet certain criteria if they want their slates wiped clean. Businesses must use the loans to cover eligible expenses, like rent and utilities, and they must keep their workforce intact. Officials hope the loans will allow more businesses to keep paying their workers. This will lessen the stress on the overloaded state unemployment systems.
Lenders Raise Concerns
Banks warn of chaotic launch for the $350 billion small business lending program that many local news outlets expect to turn to for help. https://t.co/mN986y4ee6 pic.twitter.com/nXQXMEAmcc
— Nieman Lab (@NiemanLab) April 2, 2020
The recently-passed $2 trillion spending bill allocated $350 billion to the Small Business Administration’s (SBA) Paycheck Protection Program, but U.S. lenders are in charge of administering loans. The idea is to get private-sector banks to offer loans on which the federal government bears all the risk. The government will compensate the banks for administering the loans with underwriting fees ranging from 1% to 5%.
Banks already have the resources and expertise needed to review and process loans. The government, therefore, hopes that drafting the banks to facilitate the lending would be the quickest and most efficient way to get cash to businesses that need it. However, banks and other U.S. lenders have complained that many details of the government-backed lending program remain unclear.
Several of the largest U.S. banks, including JPMorgan-Chase, say they aren’t prepared to launch their lending programs just yet. Chase said it’s still waiting for guidance from the SBA and other regulators before it will offer the loans. Meanwhile, Bank of America will only offer loans to existing customers who have deposits and loans on file as of mid-February. A Bank of America spokesperson told the Wall Street Journal that its nearly 1 million small-business lending clients are its “near-term priority”.
Regional banks aren’t sure how they should proceed either. Small businesses are flooding these smaller banks with inquiries, but many don’t have enough procedural clarity to begin offering the loans just yet. As a result, many smaller banks are also putting applications on hold until the government issues more guidelines on documentation and procedure.
The Government's Response
The Fed will incentivize small business lending by providing backing for a $350 billion coronavirus response program. https://t.co/x7BQbB0gvp
— NYT Business (@nytimesbusiness) April 6, 2020
The government has already modified the program in order to better accommodate the needs of banks. Earlier in the week, the federal government doubled the interest rates on Paycheck Protection Program after smaller community banks complained that the program would cause “unacceptable losses for lenders”. The government conceded and raised rates from 0.5% to 1.0%. It, however, appears that the government needs to take further action in order to bring more small banks on board.
Despite the concerns, Trump administration officials are adamant that the money will be available soon. At a recent press conference, Treasury Secretary Steven Mnuchin addressed the U.S. business community. “You will get the money. You will get it the same day,” he said, “You use this to pay your workers. Please bring your workers back. This is a very important program.”
The program is getting off to a bumpy start, but the Trump administration is committed to making it work. Hopefully, more banks will sign on to begin offering the loans once they receive more guidance from the government. Until then, business owners might have difficulty accessing this much-needed lifeline.
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