U.S. banks were bracing for the rollout Friday of a $350 billion loan program for struggling small businesses amid tensions over balancing due diligence with the need for timely approvals.
The Paycheck Protection Program, a major component of the $2 trillion coronavirus emergency relief package passed by Congress last week, offers partially forgivable loans to small businesses to cover payroll costs for eight weeks.
Businesses were reportedly lining up to start applying on Friday — “The response is overwhelming,” Craig Street, chief lending officer of United Midwest Savings Bank, told The New York Times — and Treasury Secretary Steven Mnuchin insisted all would go smoothly.
“This will be up and running tomorrow,” he said Thursday at a White House briefing.
But according to Politico, some banks “fear a disaster that could dwarf the failed kickoff of the Obamacare enrollment web site in 2013,” with a major concern being “the degree to which they’ll be responsible for verifying borrower information — and then held liable if things go wrong.”
The Trump administration has said banks would need to verify that a borrower was in operation as of Feb. 15 and had paid employees, while also confirming average monthly payroll costs. But banks say the verification requirements could lead to substantial delays in issuing loans and are seeking greater assurances that they won’t be held liable if a borrower obtains a loan after providing misleading information.
“Banks are ready and willing to lend, but they need clear rules of the road and a streamlined process to be able to get funding into the hands of small business owners in the coming days,” said Greg Baer, CEO of the Bank Policy Institute, which represents large lenders.
In an apparent concession to lenders, Mnuchin said Thursday that the interest rates paid by borrowers would be increased to 1% from 0.5%. Banks had banks complained they would lose money servicing the loans unless the rate was raised.
But Tony Wilkinson, the chief executive of the National Association of Government Guaranteed Lenders, said lenders still had “nothing” in the way of guidance on critical loan issues.