In the News

Banks press administration to unleash $350B in small business loans

Politico
3/30/2020

Banks are pleading for clear guidelines from the Trump administration about how to begin offering $350 billion in small business loans that Congress unlocked last week as part of the massive coronavirus economic rescue package.

Private lenders will play a lead role in delivering the government-backed loans, which can be forgiven if businesses maintain their payroll. The scale of the effort is gigantic, amounting to 15 times what the Small Business Administration's flagship "7(a)" loan program gave out in fiscal 2019.

The pace at which the huge sum of money is expected to flow is raising questions not only about whether the government can deliver it in time to struggling businesses but also about the extent to which the rapid-fire loans will be subject to fraud and abuse.

Treasury Secretary Steven Mnuchin, told by a Fox Business anchor that the network had been "deluged" with questions from small business owners, said he expected loans to be ready starting at the end of the week. Treasury on Tuesday released a copy of the loan application form plus additional guidance for borrowers and lenders.

"These loans will be available starting on Friday, which will be at lightning speed," Mnuchin said Monday.

The anxiety in the banking industry underscores broader uncertainty around the implementation and impact of the $2 trillion economic rescue package that Congress passed last week and President Donald Trump signed into law on Friday.

“Clearly, this is necessarily a case of having to fly an airplane while you build it, and SBA and Treasury appear to understand some of the challenges," said one banking industry source familiar with the process. "But there’s absolutely no way to avoid this being messy.”

"Speed is the operative word," SBA Administrator Jovita Carranza said Tuesday. "Applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans."

Banks anticipate huge demand as small businesses struggle to pay their bills, with forced shutdowns underway across the country. The lenders expect an "extremely heavy" volume of applications in the coming days, according to the Consumer Bankers Association — "thousands upon thousands" if not more.

But lenders have had to wait on guidance from the administration before executing the loan program. They've been urging officials to make the application process as streamlined as possible to get money out the door. They want it to be fully digital and to have minimal documentation requirements. They also want protections so they won't be held liable if a customer provides inaccurate information in the rush of securing a loan.

The tension between wanting to get the money out as quickly as possible while also ensuring that it goes to deserving businesses has banks contemplating how they will police potential applicants.

One method, which could narrow the pool of businesses that immediately receive the aid, would have banks stick to working with existing customers who have been vetted in earlier transactions. Treasury said Tuesday that lenders would need to verify that a borrower was in operation as of Feb. 15 and had paid employees, as well as average monthly payroll costs.

"This is unprecedented," said Consumer Bankers Association general counsel David Pommerehn. "We haven't seen this level of funding and money being pushed out of the SBA in such an extremely narrow window of time. It's going to be difficult logistically. The industry as a whole, including the SBA and partner lenders, really needs to work very tightly to make sure as much goes out as possible, as quickly as possible."

Bank trade associations have organized calls with hundreds of bankers and the SBA in recent days and have sent letters to the administration asking for guidance on how to proceed.

"They're not sure how it will work," Rep. French Hill (R-Ark.) said of bankers he's heard from. "They haven't been trained. They don't know what to expect necessarily but they do have customers that have started calling them."

Bank industry representatives said that in discussions last week, SBA officials seemed overwhelmed and were unable to answer key questions as the legislation made its way into law. Banking industry sources said the agency has encouraged banks to funnel their questions through their trade associations, which have been sending letters with questions and recommendations.

"This is an extremely streamlined process for these types of loans and one that banks are unfamiliar with making," said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association. "That is going to be a challenge — but one that many seem to be willing to take on."

Some in the banking industry are already doubting the administration's capacity to implement the program. Others say it's too soon to criticize officials under rapidly moving circumstances, with staff working remotely.

Lawmakers are also pressing the Trump administration to get answers to the banking industry.

On Monday, Senate Small Business and Entrepreneurship Chairman Marco Rubio (R-Fla.), ranking member Ben Cardin (D-Md.) and others wrote to SBA and Treasury urging them to quickly issue guidance to lenders and businesses. They also asked the SBA to upgrade its website.

"It is critical that this relief is disbursed to small businesses as quickly as possible to help ensure that no small businesses are forced to choose between solvency and retaining their employees during this uncertain time," they said.

"Standing up a new government loan facility is difficult in even the most benign operational and credit environment," said Isaac Boltansky, director of policy research at Compass Point Research and Trading. "The tsunami of demand coupled with staffing limitations suggest that there could be frictions in the initial rollout."

If anything, bankers are certain that appetite for the loans will be immense and could outstrip what Congress made available.

"While $350 billion seems like a lot of lending authority, there is a possibility if everything goes well that this lending authority could be exhausted very quickly," said Ballentine, who served at SBA before joining the American Bankers Association. "I can see that happening. There is a great deal of demand."