Small Business Loans Potentially Overwhelm Banks with Demand - The New York Times

Small Business Loans Potentially Overwhelm Banks with Demand - The New York Times


Small Business Loans Potentially Overwhelm Banks with Demand - The New York Times

Posted: 02 Apr 2020 09:30 PM PDT

Small business owners, desperate for help amid the economic meltdown wrought by the coronavirus pandemic, are eagerly awaiting the start of a $349 billion government relief program.

But just one day before the program's launch on Friday, the banks and other lenders that the government is relying on to fund loans and vet applicants were still waiting for much of the information they need to participate. They are also nervous about how they — and the government — will handle what is expected to be a huge crush of demand.

"The response is overwhelming — it's unlike anything I've ever seen in my career," said Craig Street, the chief lending officer of United Midwest Savings Bank, a community bank in Columbus, Ohio. "We're talking about attempting to do 10 times our normal monthly loan volume, and maybe more than that."

The so-called paycheck protection program, part of the $2 trillion stimulus package enacted last week, offers companies and nonprofits with up to 500 workers a low-interest loan to cover up to two months of payroll and other expenses. Most — and in some cases, all — of the loan will be forgiven if the borrower retains its workers and doesn't cut their wages. (The government will repay lenders for the forgiven portions of the loans.)

That's an appealing deal for many companies that would otherwise be leery of taking on debt in the midst of a global crisis. Jason Dolmetsch, the president of MSK Engineering & Design in Bennington, Vt., said he was eager to apply. His engineering firm and its affiliated architectural company are trying to hold on to their 23 workers despite a rash of canceled and postponed projects.

When he called his business's banker on Monday, he was told to be patient and wait. The bank had no information yet about how the program would work.

Late Tuesday, the Treasury Department and the Small Business Administration released an overview for borrowers and a sample loan application. The S.B.A., which is backing the loans, has waived most of its usual requirements — the loans do not require collateral or detailed financial records — and is encouraging lenders to take applications digitally and make quick decisions.

"This will be up and running tomorrow," Treasury Secretary Steven Mnuchin said on Thursday at a White House briefing. He added that loan checks could be disbursed "the same day" that borrowers applied.

But on Thursday evening, lenders were still waiting for technical information about how to underwrite the loans — which will be break even, at best, for most lenders — and collect reimbursement on those that qualify for forgiveness. A trade group, the National Association of Government Guaranteed Lenders, had to postpone a training call for 1,500 lenders on Thursday because it did not have the needed information from the S.B.A.

"I've asked for the information twice today, and I still have nothing," Tony Wilkinson, the group's chief executive, said on Wednesday. "I worry that they're asking lenders to make loans without the information they need to understand the rules of engagement."

Bank lobbyist groups have warned the Treasury Department that the program as designed will not be workable, expressing alarm about their own legal liability as they try to rush money to borrowers and keep tabs on potential fraud. The Independent Community Bankers of America sent a letter to Mr. Mnuchin on Wednesday complaining that guidelines calling for low-interest loans could mean "unacceptable losses" for lenders.

S.B.A. representatives did not respond to questions about when guidance for lenders would be available.

Although the government has scrambled to pull aid together quickly, the program's slow rollout has frustrated business owners facing a daily fight to salvage their companies. Paul Caragiulo is an owner of a group of restaurants in Sarasota, Fla., that employ around 150 people. He is loath to lay off anyone — even though his restaurants' sales have cratered — but he's also hesitant about borrowing what could be millions of dollars from a program whose details are being worked out on the fly.

The information sheets posted by the Treasury Department and the S.B.A. have not reassured him. "Those are bullet points, not term sheets," he said. "We're not used to having debt, and we don't look at that lightly."

The Trump administration has said it wants the paycheck protection loans to be easy to obtain; a sample application posted on Tuesday is a four-page form that can be completed in less than 10 minutes. But the fine print contains a line that gave Mr. Caragiulo pause: Borrowers must promise to buy only American-made equipment and products "to the extent feasible."

Mr. Caragiulo, who uses Italian pizza ovens, said the requirement seemed like an absurd bureaucratic tripwire. When asked about it, an S.B.A. spokeswoman pointed to a 1992 law that requires the agency to "encourage" business owners receiving financial help to buy American goods. She did not respond to questions about how — or if — that will be enforced.

Other federal small business aid efforts have been generous but chaotic. A program offering low-interest disaster loans funded directly by the government has already had more than 100,000 applicants, according to one person familiar with its operations.

The S.B.A. started taking applications weeks ago, but last Friday's stimulus bill added a new sweetener: Applicants, including those who are rejected for loans, are eligible for up to $10,000 in cash grants. (The funds are described on the S.B.A. website as a "loan advance," but an agency spokeswoman confirmed that it does not have to be repaid.)

Abninder Mundra, who owns a franchise of the UPS Store in Portola Valley, Calif., applied for a disaster loan on March 20 and was approved four days later for $210,000. Then the stimulus bill introduced the grants. Mr. Mundra said an S.B.A. representative had told him to fill out a second loan application if he wanted the grant funds. He was still waiting for both his disaster loan check and a response to the grant application.

Mr. Mundra said he could afford to wait a few weeks and was grateful for the aid. He also plans to seek a paycheck protection loan as soon as his bank starts taking applications. He had to cut his three employees' hours to offset a drop in foot traffic, and hopes the loan will help restore them.

"I think the government really understood that small businesses are the backbone of the economy," he said. "If we stop employing people, they won't have money to pay their bills."

But with job losses already setting records and certain to worsen, lenders fear that the $349 billion Congress allocated for the paycheck program will quickly run out. Senior officials from the Treasury and S.B.A. told reporters on Tuesday that they were prepared to ask Congress for more money if needed.

Jim Donnelly, the chief commercial officer of Bangor Savings Bank in Maine, said his small staff was working around the clock to accommodate the pent-up demand. In a typical year, his bank handles hundreds of business loans. He expects to process thousands in the coming months.

And even though his bank was still waiting for critical technical information, it planned to start taking loan applications on Friday.

"We have local businesses like restaurants that have shut down and are looking at these loans as a way to reopen their doors," he said.

Many of the nation's largest banks said they planned to offer the loans, though some will restrict which applicants they will work with.

JPMorgan Chase, for example, said it would make the loans available to customers with Chase business checking accounts as of Feb. 15. Bank of America and Citi both said they planned to participate but did not yet have details.

The Treasury has encouraged non-bank lenders to also offer the loans, but some that want to do so say the process has been maddening. Kabbage, one of the biggest online lenders, said the system for becoming an approved lender was opaque.

Mr. Street, at United Midwest Savings Bank, was also desperate for more information, including details about how thoroughly banks are expected to scrutinize potential borrowers. Any choice involves trade-offs: Quick approvals and cash disbursements raise the risk of mistakes and borrower fraud, but rigorous underwriting takes time that desperate business owners and overtaxed bankers don't have to spare.

Mr. Street hopes the S.B.A. and the banking industry's regulators will give lenders leeway to err on the side of speed.

"We're trying to set things up so that we can crank these things out," he said. "We had calls starting Monday morning from people who wanted to borrow right away. It was hard telling people they had to wait. Nobody can afford to wait."

White House to start small business loan program - WILX-TV

Posted: 02 Apr 2020 03:52 PM PDT

WASHINGTON, D.C. (AP) The White House says it is prepared to launch a $350 billion lending program on Friday that is intended to help struggling small businesses that have been affected by the coronavirus catastrophe.

Small Business Administration administrator Jovita Carranza said the paycheck protection program will help small companies keep employees on payroll and remain afloat.

Lenders have raised concerns that they won't be able to handle the crush of applications as businesses scurry for a cash infusion and help keeping employees on the payroll.

The Labor Department announced that unemployment claims soared to 6.6 million last week, more than double the previous week.

Copyright 2020 Associated Press. All rights reserved.

Coronavirus: US says small business aid will start Friday - Yahoo News

Posted: 02 Apr 2020 07:51 PM PDT

US Treasury Secretary Steven Mnuchin, shown during the White House virus press briefing on April 2, 2020, said the aid will begin but that not everyone would receive a loan immediately (AFP Photo/MANDEL NGAN)

Washington (AFP) - The US Treasury Secretary promised small and medium-sized businesses Thursday that financial aid from the $2.2 trillion stimulus package aimed at cushioning the economic impact of the coronavirus pandemic will flow as early as Friday.

"This will be up and running tomorrow. You'll get the money, you'll get it the same day," promised Steven Mnuchin, speaking at the daily White House press briefing on COVID-19.

However, he warned that while the aid will be "up and running, that doesn't mean everybody will get their loan tomorrow."

Businesses with 500 employees or fewer -- that is, hundreds of thousands of companies in the world's largest economy -- should be able to access the $350 billion promised within the massive aid package adopted by Congress.

The Trump administration says all that is required to apply for a bank loan is to fill out a simple form.

The Treasury guarantees the loan and will wipe it out if the company keeps its employees or re-hires those it may have already laid off.

"We want you to have a business that you can reopen quickly when it's appropriate," Mnuchin said, noting that never before has the US economy -- which was healthy before the outbreak -- come to such a sudden halt.

But late Thursday, there were increasing reports of bank groups complaining that they did not have enough information to implement the government's aid plan.

The website of the largest bank in the US, JPMorganChase, stated: "Financial institutions like ours are still awaiting guidance from the SBA and the U.S. Treasury. As a result, Chase will most likely not be able to start accepting applications on Friday, April 3rd, as we had hoped."

Mnuchin said he had spoken to key US bank executives about the initiative.

He also promised that money transfers to households would start within two weeks, compared to the previously estimated three weeks. A family of four should receive $3,000 under that part of the stimulus package.

Before the coronavirus spread to the United States and shut down large parts of industry, especially in services such as restaurants, the country's economy was robust.

The unemployment rate was only 3.5 percent in February, the lowest in 50 years.

Just two weeks later, nearly 10 million people have made their first claim for unemployment benefits, according to figures released Thursday.

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