Giant small business program poses Herculean challenge for U.S. banks
NEW YORK (AFP) – After laying off nearly all of its workforce in seven stores, Legacy Toys owner Brad Ruoho sees a way to rehire them only if the new $ 350 billion small business loan program United States (US) dollars works as promised.
The passage of the giant US relief package which includes the program “made us feel more confident to provide additional help,” said Ruoho, whose Milwaukee-based chain has already rehired 10 of 75 employees to support a growing push. of electronic commerce. .
Scaling up the massive program will be a Herculean task for the Small Business Administration (SBA) and for the country’s banks during a time of skyrocketing unemployment.
Signs were mixed on Friday afternoon, with America’s largest banks at various stages of rolling out their programs and the status of many lenders changing minute by minute.
There are also questions on everything from banking rules on money laundering to how quickly loans might be issued by lenders who were not previously part of SBA programs. On top of that, there were detailed details on the forms and documentation.
The SBA on Twitter highlighted huge interest in the program – with more than $ 2 billion in loans around 7:00 p.m. GMT – but it was unclear how quickly those funds would flow to companies facing immediate cash flow issues.
Chairman of New York-based Arrangements Abroad, which organizes vacation packages, Jim Friedlander fears the funds will not arrive in time to avoid laying off some of his 32 employees.
“The government, to its credit, is trying to do something quick and big and you want to be careful to avoid fraud,” Friedlander said.
“But it helps to have clear information so that you don’t expect the money to come right away.”
One of the pillars of the newly enacted U.S. relief bill is a $ 349 billion paycheck protection program, which provides forgivable loans to small businesses that retain workers or rehire laid-off employees from here June 30.
The funds can be used to finance eight weeks of pay or rent and are designed to allow small businesses such as restaurants, stores, and barber shops to maintain their employees while remaining closed for public health.
Small businesses, which represent a segment of the economy with less access to private capital than large businesses, have received bipartisan support under the program, which is only one component of the debt relief bill. $ 2 trillion signed last week by US President Donald Trump.
Small business finance experts praised the intentions of the program, but expressed skepticism that Washington would be able to execute it as quickly as needed.
They wonder if the SBA, which will guarantee the loans, and the US private banking sector have enough bandwidth given the scale of the needs.
During a press briefing on Thursday, US Treasury Secretary Steven Mnuchin said the government had doubled interest rates on loans to 1% following complaints from small banks and insisted that the program would be “operational tomorrow”.
But what this means is unclear.
By 6:00 p.m. GMT, Bank of America had processed nearly 60,000 requests.
JPMorgan Chase, who previously said they did not plan to launch on Friday, also began collecting information from customers, while Wells Fargo said it was “working as quickly as possible to be ready.”
One unknown is how well the SBA will streamline the normally onerous due diligence process that can take weeks, a banking source said.
“The details unfold in real time,” said Jeanne Crain, managing director of Bremer Bank, a lender in St Paul, Minnesota. “They are writing this as the clock ticks and we are right behind them.”
Crain said there was broad interest in the program, with some 600 surveys in the Minneapolis-St Paul area and a similar number in rural parts of the state.
As of Thursday, Crain was still unsure whether Bremer had a final SBA loan form for the Paycheck Protection Program.
As of Friday morning, the bank was more certain it had the final form, but a spokesperson said it had no way of submitting it.
A little later, she responded to say that the bank had an electronic link, “so as of 9:03 am we have a mechanism to forward requests to the SBA”.
At Legacy Toys, Ruoho was encouraged by consumers’ thirst for toys as he quickly turned to e-commerce, an area the company suddenly embraced as a revenue stream after previously viewing it as a prospect to long term.
Every day, Ruoho and a few other employees prepare packages in the company’s Mall of America store for UPS delivery.
The mall itself is “a little scary,” he said. “The waterfalls are all drained.” Ruoho added. ” There is no one here.
At Arrangements Abroad, staff work with clients to postpone or cancel trips.
Unlike Legacy Toys, which already has an SBA loan, the tourism company is seeking its first loan through an agency program.
Employees are also working to roll out the 2022 calendar for a hopefully sunnier period.
“It’s an opportunity to get the best hotels and the best boats at the best prices,” Friedlander said.