U.S. Fed launches program to support small business loans
WASHINGTON, USA – United States President Donald Trump said on Monday, April 6, he was satisfied with a program announced by the Federal Reserve to help facilitate the government's massive lending program for small businesses devastated by the coronavirus shutdowns.
"It's really been performing well," the president said during his daily coronavirus press briefing.
"As of today, tens of thousands of small businesses applied for more than $40 billion in relief," he said, noting that the funds will "result in nearly two million jobs being preserved."
But Trump was not able to specify how much had already been paid out to businesses.
The Fed said it will essentially buy loans that banks make to small businesses under the Paycheck Protection Program launched on Friday, April 3. That would leave the lenders with cash on hand to make other loans.
The program offers $350 billion in government-guaranteed financing through private lenders, which will be forgiven if businesses ranging from shops to restaurants use the funds largely to pay their workers.
The program, part of the $2.2-trillion rescue package approved in late March, was rushed out by the Treasury and the Small Business Administration (SBA) last week.
Banks complained that they did not receive detailed guidance on how to manage the process while borrowers were left in limbo.
Trump has also said the government was ready to ask for more money if necessary.
White House economic advisor Larry Kudlow said on Monday there were 130,000 loans totaling $38 billion from 2,400 lenders.
But questions about the program have cropped up on everything from bank money laundering rules to how fast loans could be issued from lenders not previously part of SBA programs.
On top of that were nitty-gritty details about forms and documentation.
Some businesses that applied for the financing said their applications were added to the pile, but with no word on how long they would wait.
The Independent Community Bankers Association (ICBA) on Monday called the launch of the program "flawed" and cited a "lack of clear instructions" and "massive delays" in getting loans processed due to logjams at the SBA.
"Nearly 48 hours after the program went live, hundreds of lenders are still trying to get approval to access the SBA system so they can process loans," ICBA president Rebeca Romero Rainey wrote in a letter to the agencies.
She also called on the Fed to launch a secondary market for the loans – similar to what is done with home mortgages where loans are sold, getting them off the books of the original lender – and the Fed announcement on Monday does just that.
"To facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP), the Federal Reserve will establish a facility to provide term financing backed by PPP loans," the Fed said in a statement, adding that "additional details will be announced this week."
Rainey also called for increased funding for the lending program, saying the $349 billion "is frankly inadequate for the magnitude of need in the American small business community and is likely to run out quickly."
The funds "will be depleted rapidly, and thousands of cash-starved small businesses who believe they were promised access to credit will be frustrated and angry," she said.
As early as Sunday, April 5, Wells Fargo – one of the largest banks in the US – announced that it had already exhausted the $10 billion allocated to the program. The bank is limited in the amount it can dispense because of mistakes made by past management.
Social media has become a dumping ground for entrepreneurs who are angry or disappointed that they did not receive the money right away.
But there are also satisfied businesses, such as a coffee shop in North Carolina that was retweeted by the head of the Small Business Administration.
Kudlow downplayed the problems with the launch.
"I know there are always a few glitches but I'd give it an A," he said. – Rappler.com