Bankers’ Hours column: CARES Act funds not going where needed
The devil’s in the details.
Witness one of the key elements of the CARES Act, recently passed by Congress to begin the monumental task of restarting the country’s economy.
The Payroll Protection Program made some $349 billion available for loans to small businesses to pay employees idled through layoffs or mandatory shelter-in-place orders. The concept makes sense; small business is the nation’s largest employer in the aggregate, and, when the pandemic recedes, that segment of the economy needs to hit the ground with, well, at least a brisk jog. Subject to certain conditions, these loans will be forgiven; that is, the borrowers don’t have to pay them back. So they’re actually grants.
But, as always when Congress legislates in response to a national emergency, imperfect implementation is blocking ultimate resolution. Worse, a very big chunk of the allocation is being sucked up by entities that are definitely not small businesses.
Structurally, the loans are to be processed by banks authorized to make loans guaranteed by the Small Business Administration (SBA), which has to approve the loans. So, at the outset, there are layers of complexity integrated into a program that cries out for simplicity and speed. Probably, banks should have been left out of the assembly line. Small institutions can move fairly quickly, but mega-banks have the agility of a cruise ship avoiding a head-on with an iceberg.
Banks have been inundated with requests, and that’s just the queries that manage to get through. Anyone who has jousted with the Robot Lady of a big bank knows that it’s easier to dial up the Pope to chat about soccer than to get through to a human being at a TBTF (Too Big to Fail).
And the big guys are using up their allocations rapidly. Wells-Fargo announced on April 6 that it’s reached $10 billion in applications and isn’t taking any more until the FDIC raises its limitations on lending levied by the feds after the bank’s fake accounts scandal. Others, such as Bank of America, Chase and U.S. Bank are close to using up their allocations.
A major reason that the money is going fast, aside from the really neat feature that you probably won’t have to repay the debt, is that big hotel and restaurant chains, counter-intuitively, qualify for the cash. Not nearly as much is going to small business as had been anticipated, and is necessary to any post-pandemic economic recovery. Sheraton and Marriott definitely don’t spell M-O-M and P-0-P. The administration is already proposing that another $250 billion be pumped into the Paycheck Protection Program.
A banker friend that runs a $260 million community bank on the Front Range told me his operation has taken 50 apps for the Payroll Protection Program, and the Small Business Administration (SBA) has already approved 20 of them. That’s the ideal profile: community banks helping community businesses get back to work.
The concept should be split into two programs: one for big businesses, and one for small.
When I was a kid, our family lived on a small farm with a fourth water right on Porcupine Creek southwest of Rifle. Our cash crop was hogs. It didn’t take me long to learn why the fattest pigs got to the trough first, and got even fatter.
They were bigger.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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