Fate Of American Small Businesses Rests In Hands Of Donald Trump, Steve Mnunchin ... Oh CRAP!
Small businesses struggling to survive during the current economic crisis were promised relief through a $350 billion lending program, but like all promises that come from the Trump administration, you really need to check the fine print. Poor, put-upon banks are already sounding alarms that the "Paycheck Protection Program" (or is it the "Payroll Protection Program"?) is not dressed for success. The brain trust surrounding Donald Trump haven't come through with clear guidelines for the program and have set loan requirements that are simply “unworkable." (Having read the 31 pages of "guidance" from the SBA: They're actually not. All banks have to do, at the outside, is verify payroll reports for companies that have them, or revenues and expenses for sole proprietorships or self-employed people who don't. That's it. And they stand to make a killing.)
Ami Kassar, CEO of small business loan advisory firm MultiFunding, told CNBC Thursday that the banks just aren't ready for the program's launch on April 3, which is today.
KASSAR: I think it's going to be a mess for weeks.
JP Morgan Chase already informed customers Thursday that the bank "will most likely not be able to start accepting applications" on Friday. Get lost, deadbeats!
The Small Business Association and the Treasury delivered some “new guidance" very late Thursday like it was a college slacker's term paper. Richard Hunt, head of the Consumer Bankers Association, assured us that most banks are “moving heaven and earth" to help small businesses stay afloat.
"It's remarkable to me in my 15 years swimming around the legal world … to see an implementing program that [is] regulatory driven without any regulations. It's been really a bizarre experience," Carrie Cherveny, SVP of strategic client solutions for global insurance brokerage Hub International's Risk Services Division, tells Fortune.
A common theme among lenders is that Treasury Secretary Steven Mnuchin is a moron — OK, they didn't put it in those words, but they are slightly perturbed that Mnuchin dropped this program on them with a crazy-ass deadline and even worse guidelines. Ken Logsdon, a partner at international law firm Dorsey & Whitney, claimed he'd be “absolutely shocked" if the program rolled out Friday as planned.
Banks worry that they'll get inundated with millions of applications and they're especially concerned about the extent to which they're liable for the loans. (Even though it's extremely clear in the guidance that ... they're not.) Let's cut to the chase (or some other bank that'll actually give out loans): These aren't ideal economic conditions, and the outlook is uncertain because the coronavirus is an unreasonable bastard. How many of these businesses are still going to go bankrupt and end up forfeiting on the loans? The banks have clear memories of the 2008 financial crash when everyone got mad at them.
You might think the banks are worrywarts. Businesses will have their loans “fully forgiven" if they rehire their employees by June 30 and maintain “pre-crisis" salary levels. That sounds great, but if businesses fail to do this for any reason, the loan forgiveness is reduced. We have no idea when we're permitted to leave the house again and go to restaurants or see movies. What happens if the loans don't cover several months without revenue? Well, if businesses can't pay up, at least it's the American taxpayer who's on the hook, not the banks.
Banks are still skeptical enough that even if they are able to process loans right away, they'll take care of existing and most reliable small business customers. Other potential borrowers might miss out.
"What we are hearing from a lot of our bank clients is that they are being inundated with applications, but they are going to be taking care of their current, good customers first," notes Dorsey & Whitney's Joseph Lynyak, who specializes in the banking and financial services industry.
The Independent Community Bankers of America claimed the program's 0.5 percent interest rate is so much chump change that some extremely patriotic banks won't consider it “economic or feasible to participate" in helping avoid the next Great Depression. Don't weep for the banks, though. Those that participate still stand to make three to five percent of every loan for “processing" fees, which is interesting because there's very little to actually process. The Trump administration said banks just need to verify that borrowers were operating a business as of February 15 and had paid employees. Banks don't need to hire extra staff for this. The banks collect the processing fee even if they don't verify or approve the loans, so there's a good chance they'll find it in their best interest to participate nonetheless ... for America, of course.
PSA: You are eligible for these loans even if you are self-employed or a gig worker; you do not have to show you've suffered losses, but only have to certify that the current "economic uncertainty" means you need the money. Any part of the loan spent on payroll or salary, including your own, or healthcare premiums will be forgiven and turned into a grant. But they're first-come, first-served, so call your local bank.
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Stephen Robinson is a writer and social kibbitzer based in Portland, Oregon. He writes reviews for the A.V. Club and make believe for Cafe Nordo, an immersive theatre space in Seattle. He's also on the board of the Portland Playhouse theatre. His son describes him as a “play typer guy."