Reuters: Banks Cite Liability Risks, May Not Participate in Coronavirus Lending Plan

Seeking to help millions of small businesses that have dramatically curtailed operations or shut down altogether during the coronavirus pandemic, Congress included $349 billion for small firms in its $2 trillion stimulus package passed last week. Small businesses, which will rely on banks to get the funds, employ about half of U.S. private-sector employees, according to the Small Business Administration website.

Borrowers can apply for the loans through participating banks starting from Friday and until June 30. Trump administration officials have said they want the loans disbursed within days.

But representatives of some major lenders, as well as thousands of community lenders, have expressed serious reservations about participating in the scheme in its current form and called that deadline totally unrealistic.

Their main concern is that the Treasury Department said on Tuesday that lenders will be responsible for preventing fraudulent claims by verifying borrower eligibility, which is determined by a few measures including the borrower’s number of employees and its average monthly payroll costs.

Banks also must take steps to prevent money laundering and terrorist financing, a process that would normally take weeks, the sources said.

Banks are concerned they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door. But at the same time they are worried they will be blamed for not moving funds fast enough if they perform due diligence the way they would under normal circumstances, the sources said.

Community banks said the Treasury’s guideline interest rate of 0.5% will be unprofitable, and that many small banks will not have sufficient liquidity to front up the loans.

“Taking all of the above concerns into consideration, many banks have already indicated that they will not be able to use the Program under the current terms,” the Independent Community Bankers of America wrote to the U.S. Treasury and Small Business Administration, which are jointly administering the loans program, on Wednesday.

“We strongly recommend that you make changes to the guidelines before the Program goes live so that it will work as intended by Congress,” the group, which represents thousands of small banks across the country, wrote.

The Treasury and the Small Business Administration did not immediately respond to requests for comment.

Author

Darin Hoover