WASHINGTON (Reuters) – U.S. Treasury Secretary Steven Mnuchin said he was continuing to launch a $ 349 billion coronavirus rescue loan program for small businesses on Friday, after conceding to demands from banks to correct certain aspects of the program which they believe could cause participating lenders to legally and financial risks.
Mnuchin said in a White House briefing Thursday that the Treasury and the Small Business Administration had decided to double the interest rate on loans to 1% from 0.5% previously so that small banks with costs higher deposit does not lose money.
He said the SBA’s application system would be “up and running” on Friday and encouraged businesses to turn to lenders to apply for loans, although he acknowledged that not all banks would be able to start. process requests.
“You get the money, you get it the same day, you use it to pay your workers. Please bring your workers back to work if you let them go, ”Mnuchin said.
The Treasury and the SBA also released new guidelines on Thursday evening on the program, which aims to prevent Main Street businesses, from restaurants to nail salons, from laying off employees amid large-scale shutdowns.
These guidelines should help address the concerns of lenders whether the speed of loans, which the administration has promised to be granted within days, would prevent them from exercising their usual due diligence to prevent fraud, money laundering and other faults.
This will allow banks to rely on borrower certifications and reassure banks that they will not be liable if borrowers break program rules.
“After receiving advice on how to implement a $ 349 billion program literally hours before it begins, we ask everyone to be patient as the banks move heaven and earth to implement a system and make it work to help American small businesses, ”Consumer Bankers said. Association president and CEO Richard Hunt said in a statement.
In discussions earlier this week with the Treasury and the SBA, bank executives pointed out a number of potential financial and legal implementation issues, in particular the fact that banks could not be required to proceed with their bankruptcy. usual fraud and money laundering checks for weeks, according to two people. implied.
The sources said they left those talks confident that the administration understood their concerns and believed they had broadly agreed on a workable plan.
Then, on Tuesday, the Treasury released a two-page document that appeared to contradict several things the banks believed they had accepted, leaving lenders on the verge of verifying the loans.
“The two pages of advice threw it all out the window,” said one of the sources, who works at a major bank.
Washington banking groups, including the powerful Independent Community Bankers of America, rushed to voice concerns to the administration on Wednesday and warned that banks would not be able to participate until they did. not corrected, according to sources and public letters.
Spokesmen for the Treasury and the SBA did not respond to requests for comment.
The massive program, approved by Congress less than a week ago, has put a strain on the Small Business Administration, a low-key agency known for its methodical approach to government guaranteed loans for small businesses.
The $ 349 billion government guaranteed loan program is the centerpiece of America’s $ 2.2 trillion coronavirus bailout. Depending on their size and payroll, business owners can get loans of up to $ 10 million to cover about eight weeks of payroll and other eligible overhead costs such as rent and utilities.
If they spend the proceeds of these uses, the loans are fully repayable by the Consolidated Revenue Fund. Bankers say this program could be exhausted quickly.
“We anticipate more demand than supply,” said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, which represents the SBA and other lenders.
“We need to get lenders comfortable with the rules so that we know that when we make a loan, relying on a government guarantee, we are doing the things necessary so that we actually have the government guarantee.”
He said banks would accept requests on Friday, but it’s unclear how many can be approved. “They will process them and shut them down once they know the rules. “
Reporting by David Lawder, Ann Saphir and Andy Sullivan; Editing by Daniel Wallis