Forget What I told You, Do This Instead

Bank of America took loan applications on
Friday. Though being a business customer
for 30 years, I didn't qualify because I didn't
have an existing loan facility.

I feel sorry for the people who work in banks--no, not the crooks who knowingly made loans or sold Triple-A rated products that collapsed in the financial crisis of 2008-2009--but the people who had to pick up the pieces and comply with the regulatory regime of the Dodd-Frank Act of 2010.

Now they're fielding complaints on Friday that they weren't ready to make loans based on Treasury rules issued Thursday night.

Friday was the first day for the new Paycheck Protection Program, a part of the $2 trillion stimulus package designed to address the economic fallout of the novel coronavirus pandemic.

Businesses with 500 employees or fewer are eligible for the loans, which have a 1% interest rate and are designed to keep employees on the payrolls for eight weeks, limiting the mounting ranks of workers applying for unemployment checks. If a borrower doesn’t lay off workers, the government plans to forgive the loan, including interest. Borrowers may also use the money for rent and utilities.

Many of the nation’s biggest banks, including JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., said Friday morning they weren’t yet ready to take loan applications. By Friday afternoon Chase said borrowers with a business checking account could start applying for the loans online; but the bank warned of possible “processing delays and system failures” due to high volume and told customers that some applications wouldn’t be approved by the SBA, given limited funds.

One reason many banks weren’t ready to process applications was a delay in getting final rules about the program from the Treasury Department and SBA, as well as uncertainty about what kinds of documentation will be accepted to qualify prospective borrowers. The government didn’t release final versions of the documents that must be filed by borrowers and lenders until Thursday night.

After a decade of being told to tighten their standards, the banks are under intense pressure to shovel $billions out the door to save businesses and jobs. Everyone knows that fraud is going to happen. Everyone knows that loan losses are going to happen. The banks know they'll be blamed in the future, just as they are being blamed now for not lending fast enough.

Neither a borrower or a lender be, but if you're going to pick one it's great to be a borrower today.