Small business money to clear Congress Thursday, but question of who gets help hangs over agenda
The United States House of Representatives will vote to send $ 310 billion more to Small Business Administration emergency loan program, kicking off the second round of a program that faced Failure, the obstacles, the problems and the outcry during its initial deployment.
Yet that same program is so desperately needed – and oversubscribed – that it ran out of money the first time in less than two weeks.
At the end of the line : There is a tension with this program akin to that most rescue programs face – how to send as much money as possible, as quickly as possible, while ensuring that only the small businesses that really have it. need get it? The dozens of state-owned enterprises, some of which appeared to have clear paths to more traditional financing, that received loans in the first tranche make it clear that the balance between these two parties was not right the first time around. Officials, through public shame and a new set of guidelines, will attempt to change that from Thursday.
There weren’t many. Well there was none regarding how the program is built. But lawmakers have included a new $ 60 billion reserve designed to provide money to smaller lenders, lenders with ties to small minority-owned businesses, or people with limited banking relationships or non-existent. The inclusion of community development finance institutions, which are not traditionally SBA lenders, in this pool is specifically designed to help small minority and underbanked businesses.
The Treasury and the Small Business Administration insisted that 74% of loans approved in the first tranche were $ 150,000 or less – and that’s not insignificant given that they represented 1.2 million loans. But flip the data around a bit and you’ll get a better idea of where the money actually goes.
According to SBA data, around 45% real money went towards loans of over a million dollars. A total of $ 152.4 billion of the first tranche of funds went to loans over $ 1 million.
The Small Business Administration is still trying to figure out exactly how to separate the $ 60 billion it has guaranteed to small lenders, industry sources say.
These sources say that if there is a separate portal, it could force some banks that have entered application information while waiting for the program to receive liquidity again, to start over. And that could again create problems for lenders who have to use another portal.
The money was intended to make it easier for small lenders to get money for small businesses. But the details of how the reserve fund will work are still being worked out.
The Treasury Department on Thursday morning released new guidelines for program participants designed to, in the words of one official, “deter” large state-owned companies likely to benefit from the program from applying.
The guidelines specify that the certification of economic harm required for each claim must take into account a company’s ability to obtain financing through more traditional means. It also gives any business that believes they made a mistake in applying for and receiving a Payment Protection Program loan the opportunity to pay it off in full by May 7.
The reality here is that this is not a substantial change or definition of “serious consequences” – certification has always been required and the consequences of a fraudulent signature have always remained the same. But these tips are designed with a clear purpose: to highlight a willingness to publicly warn and shame, which, as CNN has previously reported, is about all they can do given the how the program has been implemented in law.
The remarks by Senate Majority Leader Mitch McConnell on funding state and local governments yesterday underscored just how deep the political divide is between some Republicans in Congress and their fellow Democrats. But McConnell is also in a different place from some of his own members.
CNN’s Cristina Alesci, who is following this closely, also sends it: Earlier today, budget officials from the Blue and Red states wrote a pointed letter to Trump and Congress, pleading for federal help.
“Given the sudden, severe and unprecedented nature of this crisis and its economic impacts … states will always be forced to cut back on essential services in order to balance their budgets,” wrote the National Association of State Budget Officers (NASBO ) in the letter.
New York Governor Andrew Cuomo, a Democrat who has been asking for federal help for weeks now, called McConnell’s statement “politically repugnant.”
McConnell’s statement confirms CNN’s report earlier this week: that Republicans are reluctant to move quickly on state relief funding.
One of the most difficult parts of the stimulus package to negotiate has been the Main Street loan program. It was this $ 600 billion program that was administered by the Federal Reserve to help medium and large businesses. This is, without a doubt, a central part of the comprehensive rescue program, and yet it has yet to be launched.
Somewhat surprisingly, according to a congressional adviser, the launch could still take two weeks or more.
There is growing anxiety in the industry and on Capitol Hill that this program is taking longer than desirable to get started. But, there are a few reasons for this. On the one hand, this is a massive program, and remember what happened with the paycheck protection program? The rush to launch it led to some early trouble. The Fed wants to avoid any early loopholes, and by nature the Fed tends to be very deliberate and conservative about the decisions it makes about how to structure this program.
The forecast for early April made it clear that if the Fed would take 95% of the risk, lenders would bear the remaining 5%. That, according to a congressional adviser familiar with the program, could be problematic for lenders who aren’t interested in taking on more risk just yet.
Keep in mind that during the payment protection program, many banks were concerned about the early approval of loan applications. Some banks stayed on the sidelines until they got clearer guidance from the Treasury. These were 100% government guaranteed loans. Now you are talking about much larger loans in which the banks will have a share of the risk. And, anything related to this program is going to be scrutinized because of the Congressional Oversight Committee – that five-person panel – which has broad jurisdiction to review. the program in addition to the other oversight committees.
As the program is written, expect this to be a fairly narrow channel for borrowers who need the extra cash to get them through over the next 12 months. But since banks are going to have to take risks here, borrowers will likely need to present fairly strong balance sheets before the pandemic to be eligible for the money.
This story was updated with additional developments on Thursday.