Coronavirus stimulus: Banks say they are waiting on guidelines for small business loans

Small Business Administration

The U.S. Small Business Administration, a federal agency, is now offering low-interest, long-term loans to Ohio businesses and non-profits that are struggling financially because of the coronavirus crisis. (U.S. Small Business Administration)

Banks are asking for more guidance from the U.S. Treasury as they get ready for thousands of businesses to tap into the government’s $349 billion small business loan stimulus plan.

The Payroll Protection Plan, part of the $2 trillion package signed into law last week, addresses businesses shuttered by the coronavirus pandemic measures.

Reuters, citing unnamed sources, said major and smaller banks had concerns about taking on too much legal and financial risk without the right regulatory guidance.

Borrowers can apply for the loans through participating banks starting tomorrow through June 30. The program offers companies and nonprofits with up to 500 workers loans to plug the need for up to two months of payroll and operating costs. The government has promised to repay lenders for the forgiven portions of the loans, which could be most or all of the amount.

The speed with which the government wants to get the money flowing is leading some banks to question how they can satisfy the demand and at the same time meet basic regulatory stipulations against fraud. Among concerns were lenders being responsible for preventing fraudulent claims by verifying borrower eligibility while at the same time taking steps to prevent money laundering and terrorist financing.

Banks are also concerned they could face regulatory penalties or legal costs down the line, or be blamed if the process takes too long.

As the Consumer Bankers Association noted, the Small Business Administration usually makes $20 billion in loans a year, while this program calls for $349 billion in two months.

Consumer Bankers Association President and CEO Richard Hunt said banks have been “readily working around the clock to support their customers since this pandemic started.”

“We know Americans are struggling both physically and financially and are eager to ensure assistance funds authorized by Congress go to small businesses and their employees as quickly as possible,” Hunt said. "Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them.”

Regions Bank, for example, has a page devoted to the program, where it states, “The federal government must issue regulations with specific execution instructions before these loans can be made.”

“We are communicating directly with our customers to provide details about the loan program and how to apply,” the company said in a statement. “Our bankers are preparing to expedite Paycheck Protection Program SBA loan requests as quickly as possible given the significant demand for these needed funds.”

A BBVA spokesperson said the bank is “committed to helping our clients and communities through this situation, especially our small business clients, as they are the lifeblood of the US economy.”

“We have always had a focus on small and medium enterprises, and our position hasn’t changed, especially during this challenging situation. We look forward to supporting them in any way we can and we hope that guidance will be forthcoming soon from the SBA regarding this program,” the bank stated.

Thursday afternoon, Treasury Secretary Steven Mnuchin said during a news conference with President Trump that he will to raise the interest rate on the new small business loans from .5 percent to 1 percent to help make the loans economical for banks.

“It’s gonna take a little bit of time, but we have committed that this will be available tomorrow,” he said.

More information can be found about the SBA program here. You can apply for a loan here.

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