Banks warn of ‘utter chaos’ in new small business lending program
Millions of small businesses are eagerly awaiting their tranches of a $ 350 billion relief program that is part of the government’s $ 2 trillion economic support program. However, just hours before launch, it wasn’t until Thursday night that the banks received their 31-page Treasury Department advice on how to lend money – and some haven’t even decided if they want to. could participate in the opening. day.
In a clearly worded statement, one of the nation’s largest lenders said the much-vaunted relief program for small business owners was not ready for prime time.
“Financial institutions like ours are still waiting for advice from the SBA and the US Treasury,” Chase Bank said in an email to business clients, referring to the Small Business Administration. “As a result, Chase likely won’t be able to start accepting nominations on Friday, April 3, as we had hoped.”
The bank said it will post electronic updates to its website and Twitter account and send emails when it is ready to start participating.
“We’re working hard to be ready as quickly as possible,” a senior Chase executive told NBC News, but with several regulatory hurdles, the bank was unlikely to start processing applications by Friday morning.
At a White House press briefing Thursday afternoon, Treasury Secretary Steven Mnuchin said the program was ready to go and said he was unaware of the complaints. “We just implemented the federal registry with the new guidelines for lenders,” he said. “I have been assured that the banks will start lending tomorrow.“
“This is a very high priority, we want to get this money into your hands quickly,” Mnuchin added. He said Treasury has spoken with key bank executives and received feedback, and now has streamlined the application form.
The application period for the Paycheque Protection Program administered by the SBA begins Thursday at midnight. The program promises relief to around 30 million small businesses, providing eight weeks of cash flow and 100% federally guaranteed loans that could be completely canceled if they use them to retain employees. The money can also be used to pay rent, utilities, and mortgage interest, with no collateral required.
However, as late as Wednesday evening, Bank of America CEO Brian Moynihan, the country’s main bankers contact for the measure, had a private phone call with Mnuchin to go over the plan line by line, banking executives told NBC News.
While Bank of America is cautiously bullish, JPMorgan has expressed less confidence, according to senior sources at the bank.
The policy vacuum has left bank executives scrambling to concoct a massive small business support program from scratch.
With millions of non-essential business closures due to the coronavirus pandemic, revenues fell to zero for many operations. Initial weekly unemployment claims soared this week to 6.6 million, eclipsing all previous numbers.
Small businesses say they needed the money yesterday and hope for quick relief – and millions should apply on day one. However, checks may not start for a week or more.
“It’s total chaos,” said James Brower, partner at Marks Paneth, a New York-based accounting firm. “Business owners are asking for this money. They want to pay their employees. They want to pay their owner. There’s this lifeline that’s been abandoned, but they’re still pulling the rope to the helicopter.
“We are now hearing bankers say they may not want to participate in the program because the law does not contain a lot of details, but the phone lines are cluttered with business owners asking for loan applications,” he said. Brower said. . The banks “don’t know what the rules are, and they’re afraid that if they lend money to someone they shouldn’t have, they’ll have to pay it back to the government.”
The rules require small businesses to upload their pay stubs, but without a consistent way to report them, some of the statements will need to be reviewed individually. Then there are concerns about information verification and the potential for fraud or just simple mistakes.
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Lenders are timid after the industry was held responsible for billions of dollars in fines and lawsuits following the deployment of relief efforts after the 2008 financial crisis.
Democratic presidential candidate Joe Biden on Thursday drew attention to potential administrative problems with the coronavirus relief program. He urged the administration to grant loans quickly and not just to the “well connected” or a few “shining” examples.
Nick Simpson, head of public affairs for the Consumer Bankers Association, said: “If you are already an SBA approved lender, you have the rails to manage the requirements. Since it is managed by this system, it is not. as if something had to be created. “
“The potential for things to slow down would be related to the way the verification and the underlying requirements are imposed on the bank,” Simpson said. “If this is a very simple process with minimal subscription, which is more like a credit card than a traditional loan, things will work a lot easier.
“The longer the application process takes, there could be some delay. Not everyone will get a check tomorrow, but that doesn’t mean they won’t get one, ”said Simpson.