Confusion surrounds launch of $ 349 billion in small business loans

Banks and industry groups say a new rescue loan program for small businesses is off to a rough start and could be well below what businesses need to stay afloat during the economic fallout from the coronavirus.

The Treasury Department and the Small Business Administration (SBA) Friday deployed applications for small businesses to receive forgivable payroll loans and other basic expenses amid the economic toll from the coronavirus.

But banks, credit unions and other lenders say the $ 349 billion program lacks clear guidelines for handling a looming wave of loan applications that could overwhelm the system while leaving some businesses in deep trouble.

“The guidelines were released hours before the start of this program and there are still a number of unanswered questions that will most likely make it difficult to execute these critical loans quickly,” said Jim Nussle, President and CEO of the Credit Union National Association, a trade group for credit unions.

The amount allocated to the Paycheck Protection Program (PPP) is more than 12 times the $ 28.1 billion in loans granted by the SBA in 2019, threatening to overwhelm agency staff.

Treasury and SBA opened loan program a week later President TrumpDonald Trump Federal Judge Rejects Trump’s Efforts to Block Jan.6 Documents Sununu’s Exit Highlights GOP’s Uncertain Path to Senate Majority Trump Endorses Idaho Lt. govt. against the head of the GOP in place MORE enacted the record $ 2.2 trillion economic bailout program that created it, leaving lenders little time to prepare for the surge in demands.

Launch capped a frenzied week for Treasury Secretary Steven mnuchinSteven Mnuchin Large Russian Hack Group Linked to Sinclair Ransomware Attack: The Hill’s Morning Report – Presented by Alibaba – Biden Engages in Frenzied Talks over Dem spending Former Treasury Secretaries Tried to Resolve Deadlock on debt limit in talks with McConnell, Yellen: MORE report, which implored businesses with fewer than 500 employees to apply for loans from their banks or credit unions while insisting that the government will be able to handle an increase in requests.

“I want to make sure that part of the economy is ready and intact when we’re ready to reopen,” Mnuchin said in a White House briefing Thursday. “Now let me be clear, that doesn’t mean everyone is going to get their loan tomorrow.”

Hundreds of thousands of small and medium-sized businesses are expected to compete for the PPP loan pool as the coronavirus pandemic forces businesses across the country to shut down. More than 10 million Americans have applied for unemployment benefits in the past two weeks, according to data released Thursday, as companies were forced to lay off workers.

While the money for the loans will come from the federal government, employees of banks and credit unions still have to review, approve and process the applications.

Some banks and credit unions have already been inundated with initial applications, and experts expect program funding to be quickly tapped by companies with the resources and connections to overcome the backlog.

Mnuchin has sought to allay concerns about the program’s launch with frequent updates on Twitter about how much has already been loaned under the program. He also touted the Bank of America’s approval of millions of loans through Friday.

Still, Bank of America has drawn fire from critics like Sen. Marco rubioMarco Antonio RubioSununu’s exit highlights GOP’s uncertain path to Senate majority Pick a time and respect it Republican senators call for military aid for Taiwan under pressure from China MORE (R-Fla.), Who is the author of the PPP program, to restrict lending to pre-existing business customers to help reduce the flow of applicants.

“Just let me say this as nicely as possible: Please don’t be a bunch of morons, okay?” When you needed the country to help you, they did it ”, Rubio said in a video Friday, referring to the 2008 bank bailout. “Now the country needs you to help them, and we are paying you to do it. “

The United States Chamber of Commerce published a poll On Friday, it revealed that 24% of small businesses say they will shut down permanently within two months or less due to the economic fallout from the coronavirus pandemic.

“We’ll have to be patient all around. I’m really impressed with how quickly America’s financial institutions have responded by stepping up and making sure they’re helping small businesses across the country, ”said Neil Bradley, House Policy Director, during a call with reporters on Friday.

Congress is already considering a phase four coronavirus relief program that would build on the $ 2.2 trillion in aid already approved and business advocates are seeking this to address identified gaps in the implementation of this. program.

“Every lawmaker we speak to says – none of them wants to be in the position that there are 10 other small businesses in line when the program needs to shut down,” Bradley said. “The idea that we’re going to leave some people behind, that Congress isn’t going to fix that, I don’t think that’s going to happen.”

Other business advocates have expressed concerns that, under the Treasury Department’s leadership for the program, only 25% of the reimbursable amount can be spent on non-salary costs, which could be a major problem for companies. small enterprises.

“It appeared in the Treasury guidance documents and it’s not in the statutes, it’s an additional layer of complication,” said John Lettieri, CEO of the Economic Innovation Group. “This is a program that includes a strong incentive to retain your employees throughout the crisis. But it’s not okay to take out a loan to pay employees if you can’t cover your other expenses, rent, mortgage, utilities as well.

“I expect they will have to authorize a much larger amount than the $ 350 billion they initially set aside. It could be fine, literally, in a few weeks, ”he added.

Questions about loan repayments can also cause lenders not to immediately participate in the program, said Brock Blake, founder and CEO of Lendio, a marketplace for small businesses.

He said lenders could wait for another round of funding for the upcoming coronavirus relief program.

“If a lending institution has $ 100 million to lend, that $ 100 million could go in a day. What if they only serve a third of their customers? ” He asked.

For some small business owners, the government’s efforts with the loan program are seen as insufficient for the task at hand.

“You have an absolute economic crisis right now as businesses are closing, people are being laid off, and there is no end in sight and there is no relief in sight,” said Julie Verratti, former advisor. SBA politician and Maryland co-founder. based at Denizens Brewing Co.

“These programs that have been created – they are well intentioned, they can be slightly helpful, but it’s like trying to put a bandage on someone who is recovering from a severed limb,” she added.

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