A Small Business Administration official criticized some big banks for taking bailout money in 2008, only to resist helping small businesses during the coronavirus crisis despite the fact that loans have been federally subsidized and are desperately needed, Washington Post reported.
Congress on March 27 approved up to $349 billion in forgivable loans under the Paycheck Protection Program, which uses federal money to back up private-sector bank loans at ultralow interest rates. If business owners keep their employees on the payroll, the loan can be forgiven. The program relies on private banks to set up the loans and give out cash. It is a critical piece of the recently-approved $2 trillion federal aid program known as the CARES Act.
Joseph Amato, district director of SBA Nevada, said in a Zoom conference posted online that there are challenges with implementing the SBA’s disaster loans program. The small government agency is struggling to deal with more than 3 million loan applications received in a few days.
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Banks have issues too. Most big banks said they were not ready to start processing applications last Friday when the Payment Protection Program launched. They were flooded with applications immediately and said they lacked clear guidance from the government. New rules written after Congress created the program are a problem for businesses and banks have had difficulty with the Small Business Administration website crashing, NPR reported. Some banks said they’ve reached the limit set for loans under the program.
Here’s how Amato addressed criticisms that the SBA did not release its regulatory documents quickly enough. “So what they are saying is ‘I don’t give … a hoot about the small businesses … what I care about is whether or not I have enough paperwork. It’s just crazy.”
The problem with the PPP program is that it doesn’t align with the reality of the situation that a lot of businesses are going through right now, said Stephanie O’Rourk, a partner at accounting firm CohnReznick.
For example, O’Rourk told NPR that the new rules now say that the loans must be paid back in two years instead of the 10 that the CARES Act says. Also, the Treasury added a rule saying three-quarters of the money must be used on payroll in order for it to be forgiven.
Banks are being criticized because many are making the program available only to their own customers, according to dozens of small business owners that contacted NPR. That worried some small business advocates because it threatens to leave out Black-owned businesses.
Amato spoke during a Zoom teleconference that was recorded, posted online on April 6 and seen by The Washington Post. The comments showed the frustrations federal officials face as they work with banks to quickly ramp up one of the most ambitious economic stimulus programs in U.S. history, Washington Post reported.
“Some of the big banks … and this is just editorial … that had no problem taking billions of dollars of free money as bailout in 2008 are now the biggest banks that are resistant to helping small businesses,” Amato said.
JPMorgan Chase said it needed more time to understand the rules, which were released just hours before the program launched last week. Chase co-president, Gordon Smith, said the bank had already taken 375,000 applications by Tuesday for $40 billion in loans, according to a spokesperson.
Citigroup was not taking applications as of 9:30 a.m. Wednesday morning, Washington Post reported.
Wells Fargo never formally started taking applications, but by Monday morning, it said that so many people had expressed preliminary interest that it had already reached the $10 billion limit it had set for loans under the program.
Because of concerns that the largest U.S. banks are dragging their feet and limiting involvement on the Paycheck Protection Program, the SBA is trying to establish relationships with “non-bank lenders,” Amato said.
“We are trying to work quickly with national non-bank lenders and other sources that may make up the difference for the companies like, sadly, BofA, Wells Fargo and Chase that haven’t really stepped up to the plate to take on all the small businesses they can,” Amato said.
It’s hard to unravel some of the online criticism of SBA from criticism of the big banks.
Bill Sweet, chief financial officer of Ritholtz Wealth Management, compared the SBA’s rollout of PPP to the fraudulent Fyre Festival. Organizers for a widely publicized Fyre Festival music event accepted people’s money but never produced a festival, leading to several lawsuits.
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“PPP roll-out is basically the small business Fyre Festival – BOA automatically rejecting applicants who don’t have an existing credit card, Chase website returning null data,” Sweet tweeted.
President George W. Bush signed the $700 billion bank bailout bill on Oct. 3, 2008. The bailout was approved to buy mortgage-backed securities that were in danger of defaulting. By doing so, these debts were taken off the books of the banks, hedge funds, and pension funds that held them.
Nearly 10 million homeowners lost their homes to foreclosure in the U.S. between 2006 and 2014. “Lenders were the biggest culprits, freely granting loans to people who couldn’t afford them because of free-flowing capital following the dotcom bubble,” according to Investopedia.