Hours before a federal program of at least $ 350 billion in lending to troubled small businesses was launched, banks polled by CNBC weren’t sure they’d be ready.
From giant global institutions with trillion dollar balance sheets to regional banks and small local lenders, all companies had one thing in common: they waited for key guidance from the Small Business Administration and the Treasury Department on how to properly manage the program.
“They are not ready yet, they are desperately waiting for guidance,” said Ami Kassar, CEO of MultiFunding small business credit adviser. “I think it’ll be a mess for weeks.”
JPMorgan Chase, the largest US bank, was the first to publicly say what others had whispered: It emailed its clients late Thursday to say the company “most likely won’t be able to Friday April 3rd to take applications as we’d hoped. ”
The program is an integral part of the $ 2 trillion stimulus package that President Donald Trump signed last week to help cushion the disruptions associated with the coronavirus. The government has asked banks to begin disbursing $ 350 billion in forgivable loans shortly after midnight, and the Treasury Secretary has asked Steven Mnuchin said on CNBC this week that he would ask Congress to do so more funding when the money runs out.
Mnuchin doubled the timing, saying in a press conference Thursday evening that the program “will be up and running tomorrow” and that he will raise interest rates that banks can charge after hearing industry feedback.
However, the banks did not get an overview of the information they need to create web portals for the program until Wednesday, when the Treasury Department’s website was uploaded with a sample application. Since then, they have been told repeatedly that further guidance would come.
When it finally arrived late Thursday, banks had to struggle to digest a 31-page “interim closing rule” that set out how the program will work. This left little time for banks to make the necessary changes before the program started at midnight.
“Having just received guidance on how to implement a $ 349 billion program literally hours before it starts, we’d ask everyone to be patient as the banks move heaven and earth to get a system in place and up and running to help America’s small businesses and the millions of people who work for them, “said Richard Hunt, director of the Consumer Bankers Association.
Lenders asked for assurances that they would be “held harmless” if borrowers use inaccurate data in their applications and, according to people with knowledge of the discussions, want to clarify who is responsible for fraudulent loans.
The industry also called for the tough anti-money laundering rules to be relaxed for this program, with smaller banks in particular demanding higher interest rates than the Treasury Department has disclosed, another person familiar with the matter said.
The largest lenders, including JPMorgan Chase, Bank of America and Wells Fargo, are expected to only accept applications from existing customers through websites the banks are building. The banks receive fees of 1% to 5% for the loans, depending on the size, and collect 1% interest if they are not waived after two months. This 1% rate was changed from 0.50% late on Thursday.
One industry group was so concerned its members were running out of time that they discussed an IPO with a request to postpone the start of the program to at least Monday, according to one expert. It withdrew after assurances were given that more guidance would come soon.
One possible cause of the delay: dysfunction between the SBA and the Treasury Department, said Brock Blake, founder of Lendio small business loan marketplace.
“30 million small businesses will smash the doors to capital tomorrow,” Blake tweeted on Thursday. “It’s a disaster waiting to happen.”
The last time banks were asked to manage a government aid program was a mortgage modification program after the 2008 financial crisis. The Home Affordable Modification Program was closed after it helped you Fraction of the 4 million Targeted homeowners first.
Lenders fear government fines related to running the program, as they did in the years following the financial crisis, said Paul Kupiec, a scientist with the conservative think tank American Enterprise Institute.
“These loans are a minefield for lenders,” said Kupiec. They are “replete with qualification requirements that need to be verified and certified,” he said, adding that it “isn’t hard to imagine that there could be unscrupulous companies stretching the truth to get higher credit than the law allows “.
The banks are also concerned about the timing of the start of the program. “You did it on a Friday so people would want to do it before the weekend,” said a manager at a major US bank. “We are preparing for an avalanche of money inquiries.”
Not long ago an interview On Wednesday, Mnuchin piqued interest in the program with CNBC’s Jim Cramer, which he repeated on Friday.
“Jim, you need to keep talking about this and get everyone to sign up,” Mnuchin said. “I would like to thank everyone at the SBA and the Ministry of Finance who literally worked 24 hours a day. The fact that we were able to set up a new program in less than a week is simply extraordinary.”
With coverage from CNBC’s Wilfred Frost, Kayla Tausche and Kate Rogers.