What Comes Next For Small Businesses And The Paycheck Protection Program

As one owner told me, if all of these loans are fully guaranteed and banks truly are held harmless, why are they involved at all other than being a conduit for immediate funding?

Why are they going through all these approval processes? Wouldn’t a better use of resources be fraud determination after the fact?  Get the money into the economy and have the banks deal with those recipients they suspect of fraud rather than being arbiters of credit at the time of application.

What makes this even crazier is that is that if the average size loan is $200k, the average fee is 5%. 5% of $350 billion is $17.5 billion of risk free money that the banks will earn in TWO WEEKS.

Why is the treasury letting banks process these so slowly. For the 2nd tranche, if its also $350 billion, another $17.5 billion in fees will be made in a week or two. The treasury should be able to dictate what the banks do, when they process these, shouldn’t they? Given what is at stake with the economy, shouldn’t the Treasury just tell the banks to fund first, audit for fraud later?

6. Banking remembers the financial crisis

Every bank I have talked to is terrified that all of these loans will be audited in 2 years and a new political climate will lead to them being nitpicked in those audits and actually losing a substantial amount of money. Despite the $17.5b in fees, they want it legally incorporated into the law that they wont be audited and face loses on these loans. The reality is that this request is very reasonable.

Hope this helps.

Image source: Alan Levine, Flickr

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