Thousands of U.S. banks may sit out small-business rescue plan on liability worries
WASHINGTON – Thousands of U.S. banks, including some of the country’s largest lenders, have said they may not participate in the federal government’s small-business rescue program due to concerns about taking on too much legal and financial risk, five people with direct knowledge of industry discussions told Reuters.
Seeking to help millions of small businesses that have dramatically curtailed operations or shut down altogether during the coronavirus pandemic, Congress included $349 billion for small firms in its $2 trillion stimulus package passed last week. Small businesses, which will rely on banks to get the funds, employ about half of U.S. private sector employees, according to the Small Business Administration website.
Borrowers can apply for the loans through participating banks starting from Friday and until June 30. Trump administration officials have said they want the loans disbursed within days.
But representatives of some major lenders, as well as thousands of community lenders, have expressed serious reservations about participating in the scheme in its current form and called that deadline totally unrealistic.
“Taking all of the above concerns into consideration, many banks have already indicated that they will not be able to use the Program under the current terms,” the Independent Community Bankers of America wrote to the U.S. Treasury and Small Business Administration, which are jointly administering the loans program, on Wednesday.
Continue reading from Reuters…
(TLB) Editors: Below you will find additional facts and comments to consider about the stimulus package and this story.
More from ZeroHedge
Tonight at midnight, the most critical – if hardly biggest – part of the Fed’s $2 trillion fiscal stimulus is expected to begin: that’s when small and medium business with 500 employees or less can request a loan of up to 2.5x the average monthly payroll (capped at $10 million), meant to buy cash-strapped companies just under 3 months in liquidity. As we discussed previously, the loans which are packaged under the SBA’s Paycheck Protection Program carry a 0.5% interest rate, and would be forgiven if their proceeds are used toward operational uses such as payrolls, utilities, and rent.
Needless to say, getting these loans into the hands of America’s 30 million small businesses is absolutely critical: they employ about half of U.S. private sector employees, according to the Small Business Administration website.
There is just one problem: with just hours to go until millions in small businesses across the nation scramble to apply for much needed funding, the program appears to be on the verge of collapse amid what appears to be sheer chaos between the Treasury, the Small Business Administration, and the various commercial banks that will be tasked to loan the action money.
One reason why the program is woefully unprepared for a Friday midnight rollout is that banks that haven’t underwritten SBA loans before will need to get onboarded in the system. However, as Politico reports, as of last night, there was no application available for banks to do this, and as CNBC’s Kayla Tausche adds, Treasury remains committed to originating these loans beginning tomorrow, despite hiccups.
But wait there’s more: as CNBC’s Kate Rogers reports, an “official familiar with the Paycheck Protection Program loans rolling out tomorrow says official guidance for banks is not yet finalized” with Kayla Tausche adding that in addition to general guidance, banks are asking Treasury for two specific changes to the small biz program:
- Smaller banks want higher interest rate so they don’t lose money
- Big banks want “know your customer” rules waived so they can lend to co’s they haven’t worked with
The bottom line is ‘this hose’ has a number of ‘kinks’ that need removed before it can water the ‘money tree.’ Tyler at ZH put it into perspective today with his article headline :“It’s A DISASTER Waiting To Happen”: Hours Before Its Start, The Small Business Bailout Is On Verge Of Collapse”. (TLB)
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