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The Finance 202: Banks struggle with confusing rules on small business stimulus loans

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with Brent D. Griffiths


Small-business owners desperate for a federal lifeline seem poised to instead encounter chaos and a slew of questions about accessing loans aimed at keeping them running during the coronavirus pandemic. The upshot is that some banks expected to distribute the loans, including some major names, won't yet participate in the program.

Treasury Secretary Steven Mnuchin vowed from the White House podium yesterday that small businesses battered by the coronavirus epidemic could access $350 billion in taxpayer-backed cash quickly starting on Friday. But as the rescue effort debuts, banks are concerned in part about how to assess the risks of small businesses applying for assistance directly to them, even as the federal government is guaranteeing those loans.

JPMorgan Chase, for instance, posted a notice online that it won't be accepting applications from prospective borrowers. “Financial institutions like ours are still awaiting guidance from the SBA and the U.S. Treasury,” it said. 

Banks are asking questions about the length of the loans, the interest rates they can charge, and how much due diligence financial institutions are responsible for performing on borrowers

Mnuchin attempted to tamp down criticism from the White House briefing room yesterday evening, flanked by SBA Administer Jovita Carranza. He said the pair talked into the wee hours of Wednesday morning with the banks expected to do the heavily lifting under the “Paycheck Protection Program” authorized in the $2.2 trillion coronavirus stimulus legislation.

The Treasury Department, after blowing through several assurances to deliver banks guidance provided some ground rules on the program Thursday night, less than six hours before the effort was set to launch. “We now need to execute,” Mnuchin told reporters at a White House media briefing. “I've been assured that the banks will start lending tomorrow,” though he acknowledged not every borrower immediately would be able to secure a loan.   

He tweeted a link to the application late Thursday night: 

Industry groups are pleading for patience. “Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them,” Consumer Bankers Association chief Richard Hunt said in a statement. And American Bankers Association president Rob Nichols cautioned it “will take some time before it’s fully functioning.”

Brock Blake, chief executive of the Salt Lake City-based financial technology company Lendio, tweeted his exasperation: 

From Rep. Don Beyer (D-Va.): 

The administration has a vanishing margin of error as it scrambles to preserve the small businesses employing about half the country’s private-sector workforce. Weekly jobless claims are skyrocketing. Last week, 6.6 million Americans filed for unemployment benefits — a number equal to all the jobs the economy added in the first three years of President Trump’s term. At least 10 million Americans have lost their jobs in the past two weeks, a record-breaking sum that economists say implies the unemployment rate has already surged to 10 percent.

Small businesses, defined as those with fewer than 500 employees, have been on the front line absorbing the economic shock set off by the coronavirus shutdown. The loans will offer them “ultralow interest rates, no payments for the first six months and the opportunity to have the loan completely forgiven if employees can be kept on payroll throughout the crisis,” my colleagues Aaron Gregg and Renae Merle write. “And the loans will apply to a broad swath of the U.S. business community, including an array of businesses, sole proprietors and independent contractors.”

The government, they write, “is guaranteeing 100 percent of the loan’s value, meaning banks are repaid by taxpayers if the business fails to repay the loan.” And the administration announced it was easing the work participating banks need to do to verify borrower information. “But community banks are also concerned about the low interest rate, which was increased from 0.5 percent to 1 percent following complaints from banking associations. The law allows for a maximum interest rate of 4 percent.”

Headaches will persist for borrowers, too. Small businesses face the specter that the pot of money will dry up too fast — and that the tweaks administration officials are making  will make it less helpful as they struggle to operate.

One issue, Cowen Research’s Jaret Seiberg writes in a note, is the program requires that borrowers "must intend to use at least 75% of the proceeds for payroll regardless of whether the business seeks loan forgiveness. That limits the ability to use these loans to pay rent and keep the lights on until the COVID-19 crisis eases.” And that, in turn, will have the practical effect of rendering the program “more about keeping workers from collecting unemployment insurance for eight weeks than it is prepping these business for the recovery.”


— More on those staggering job losses, from my colleague Heather Long: "The past two weeks have erased nearly all the jobs created in the past five years… Many economists say the real number of people out of work is probably even higher, since a lot of newly unemployed Americans haven’t been able to fill out a claim yet." 

— Gains on Wall Street produced a jarring split screen with the carnage in the real economy. As job losses piled up, investors were cheered by news of a possible Russia-Saudi oil deal: “U.S. stocks vaulted to big gains Thursday on word that Saudi Arabia and Russia may slash crude output by 10 million barrels a day. The cuts could chart a path toward restoring the hardest-hit sector of the economy, and the news came as markets were digesting bitter unemployment numbers,” my colleague Thomas Heath reports.

“The Dow Jones industrial average soared more than 500 points Thursday shortly after [Trump] told CNBC that Russia and Saudi Arabia had agreed to consider significant production cuts. Trump said he had spoken with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman about the need to stabilize oil prices, which have fallen roughly 60 percent in the past month.”

  • Trump announced the potential deal: “Trump told CNBC’s Joe Kernen … that he spoke to President Putin yesterday and Saudi Crown Prince Mohammed bin Salman Thursday and expects them to announce an oil production cut of 10 million barrels, and could be up to 15 million,” CNBC's Fred Imbert and Pippa Stevens report. “Oil production is typically discussed in terms of barrels per day, but Trump made no reference to the time frame of the cuts. Additionally, it was not clear how the cuts would be distributed across oil-producing countries.”

Trump doesn't plan on asking U.S. oil producers for cuts: The United States will not ask U.S. domestic oil companies for a coordinated cut in production to counter a historic meltdown in global prices and is still awaiting the details of planned cuts in Saudi Arabia and Russia, a senior administration official told Reuters,” Jeff Mason reports.

The official said the United States cannot orchestrate a mandated cut in domestic production and noted that U.S. companies had already cut production in response to a collapse in market demand. They did not have to be asked to cut, the official said.” 

U.S. Jobs Report Likely to Show Start of Record Labor-Market Collapse (WSJ)

Fed balance sheet increases to record $5.86 trillion (Reuters)


President Trump has blamed hospitals, medical workers and governors for health-care equipment shortages amid the coronavirus outbreak. (Video: The Washington Post)

In the United States:

  • Trump invokes the Defense Production Act. Following weeks of pressure to tap his authority under the law, Trump announced he would use it to compel 3M and six medical device makers to produce ventilators and masks, Politico's Gavin Bade reports. He also tweeted about targeting 3M:
  • Inside the struggle to produce more masks: “The confluence of a slow initial response by the Trump administration, its wariness of compelling the industry to produce gear and a long-running debate about granting manufacturers legal protection in a health emergency contributed to a critical shortage of masks to front-line workers,” my colleagues Jeanne Whalen, Rosalind S. Helderman and Tom Hamburger report.
  • Experts doubt White House's grim math: “Leading disease forecasters, whose research the White House used to conclude 100,000 to 240,000 people will die nationwide from the coronavirus, were mystified when they saw the administration’s projection this week,” my colleagues William Wan, Josh Dawsey,  Ashley Parker and Joel Achenbach report. “The experts said they don’t challenge the numbers’ validity but that they don’t know how the White House arrived at them.”
  • Fears mount that Florida waited too long to act: “… As case counts climb in the nation’s third most-populous state — one home to bustling international airports, swarms of tourists and many vulnerable residents — many are now left to wait and wonder if the latest restrictions came in time, and what lies ahead for the Sunshine State,” my colleagues Cleve R. Wootson Jr., Lori Rozsa and Brady Dennis report from Orlando of Gov. Ron DeSantis's long-awaited stay-at-home order.

Corporate fallout: 

Bailouts won't come with all the requirements Democrats promised: “Most big companies that take advantage of the $500 billion corporate bailout in last week’s coronavirus relief bill are unlikely to face restrictions against firing workers or giving bonuses to executives, according to officials familiar with the program,” Politico's Michael Grunwald reports.

“Congressional Democrats have boasted about the strict conditions they negotiated to make sure the CARES Act’s massive corporate-aid package benefits employees rather than their bosses. And the bipartisan legislation that [Trump] signed Friday did attach tight strings to the $46 billion the Treasury Department will dispense to airlines and firms it deems vital to national security. But the other $454 billion in the law for larger firms will flow through Federal Reserve lending programs, and people close to the Fed say its top officials don’t think they’re required to force companies that get the money to keep workers on their payrolls, limit executive compensation or forgo stock buybacks or dividends.” 

  • Fed's Kashkari wants to be more generous with rescue programs: “In seeking how to distribute the more than $400 billion allocated to TARP, [Minneapolis Federal Reserve President Neel] Kashkari said those making the decisions were ‘too targeted’ because they wanted to avoid the appearance of bailing out people who didn’t deserve it,” CNBC's Jeff Cox reports.
  • Insurers isolated themselves from pandemic-related claims: “… The added policy language will potentially allow insurance companies to avoid hundreds of billions of dollars in business-interruption claims because of the covid-19 pandemic,” my colleague Todd C. Frankel reports of changes after the SARS outbreak.
  • Boeing and GE become latest companies to show strain: The Chicago-based Boeing has begun making buyout offers to employees to avoid more drastic cuts and General Electric is furloughing 50 percent of U.S. engine and component manufacturing operations staff.
  • NYSE chief pledges to reopen the trading floor. Stacey Cunningham, president of the New York Stock Exchange: 

International fallout:

  • The global confirmed case count has topped 1 million. Nearly a quarter of them are in the United States.
  • CIA warns White House over China's death count: The CIA. has been warning the White House since at least early February that China has vastly understated its coronavirus infections and that its count could not be relied upon as the United States compiles predictive models to fight the virus, according to current and former intelligence officials,” the New York Times's Julian E. Barnes reports.
  • Britain is also scrambling to produce ventilators: “There are 8,000 ventilators available today in England, home to 56 million people. Britain has far fewer critical-care beds and breathing machines than Germany, France, Italy and Spain,” our colleagues William Booth and Christine Spolar report from London. The government says it needs 30,000 new machines.
  • Australia's top doctor says the number of virus cases may be 10 times what's being reported: “[Australia’s Chief Medical Officer Brendan Murphy] also expressed doubts about the number of confirmed cases in other countries, including the United States, where almost one in four global cases have been found so far,” my colleague Adam Taylor reports.


— Pelosi announces select committee to help manage the stimulus: “House Speaker Nancy Pelosi announced the creation of a new select committee with subpoena powers to scrutinize the Trump administration’s response to the coronavirus pandemic, and its management of the new $2 trillion economic rescue law," my colleagues Erica Werner and Paul Kane report.

“Pelosi’s announcement comes amid growing clashes between congressional Democrats and the Trump administration about oversight of the new rescue legislation and a $500 billion fund controlled by the Treasury Department. [Trump] has to appoint a new inspector general to oversee that fund but has already signaled opposition to the scope of that person’s mandate."

  • Modeled after the Truman Committee: “Pelosi told reporters on a conference call that her new committee would be modeled after the World War II-era committee run by then-Sen. Harry Truman (D-Mo.), whose role in investigating the implementation of billions of dollars in defense contracts eventually led to his elevation to vice president.”
  • Clyburn will lead the panel: “The House Select Committee on the Coronavirus, as Pelosi called it, will be chaired by Rep. James E. Clyburn (D-S.C.), who is the No. 3 Democratic leader as majority whip. No further details were provided about how many lawmakers would serve on the panel.”

Trump lashed out at the prospect of more oversight: “Without specifically mentioning Pelosi or her new committee, [Trump] bristled at the prospect of additional congressional investigations. 'This is not the time for politics, endless partisan investigations. Here we go again. ... It’s a witch hunt after a witch hunt,' Trump said at the daily briefing of his coronavirus task force. Speaking at the same briefing, [Mnuchin] said he viewed the new committee as unnecessary, given layers of oversight already built into the rescue legislation.”


Trump’s Company Seeks to Ease Financial Crunch as Coronavirus Takes Toll (NYT)

Coronavirus Costing Trump Properties Over $1 Million Daily in Lost Revenue (WSJ)

Trump’s Net Worth Drops $1 Billion As Coronavirus Infects The President’s Business (Forbes)


Here's a stunning animation illustrating the scale of the unprecedented job destruction the U.S. has seen in the last two weeks, via Daily Telegraph editor Ben Riley-Smith: 



  • The Labor Department releases the monthly jobs report