WASHINGTON (Reuters) – U.S. Treasury Secretary Steven Mnuchin said he was pressing ahead with the Friday launch of a $349 billion coronavirus rescue loan program for small businesses despite confusion over last-minute final rules and lenders unprepared to approve applications.
FILE PHOTO: U.S. Treasury Secretary Steven Mnuchin testifies before the Senate Finance Committee during a hearing on the President’s FY2021 Budget on Capitol Hill in Washington, U.S., February 12, 2020. REUTERS/Yuri Gripas
Mnuchin told a White House briefing on Thursday that the Treasury and the Small Business Administration had decided to double the interest rate on the loans to 1% from 0.5% previously so that small banks with higher deposit costs don’t lose money.
He said the SBA application system would be “up and running” on Friday, and encouraged businesses to go to lenders to apply for loans.
“You get the money, you’ll get it the same day, you use this to pay your workers. Please bring your workers back to work if you’ve let them go,” Mnuchin said.
However, he acknowledged that not every lender would be in a position to issue loans on Friday.
Treasury and SBA issued guidance on the program on Thursday evening, but lenders were still in the dark about procedures to issue loans in the program aimed keeping closed Main Street businesses from restaurants to nail salons from laying off their employees.
Speed of loan issuance had been given a high priority, but lenders have voiced concerns about potential liabilities for fraud, anti-money laundering violations and other legal requirements.
“Financial institutions like ours are still awaiting guidance from the SBA and the U.S. Treasury,” JPMorgan Chase & Co (JPM.N) said in an email on Thursday to small business customers on Thursday.
“As a result, Chase will most likely not be able to start accepting applications on Friday, April 3rd, as we had hoped,” according to the email seen by Reuters and verified by a bank spokeswoman.
The speed of the program, approved by Congress less than a week ago, has put major strains on the Small Business Administration, a low-profile agency known for its methodical approach to government-guaranteed loans for small firms..
The $349 billion government-guaranteed loan program is a centerpiece of the $2.2 trillion U.S. coronavirus rescue package. Depending on their size and payroll, owners of businesses can get loans of up to $10 million to cover about eight weeks of payroll and other qualified overhead expenses such as rent and utilities.
If they spend the proceeds on these uses, the loans are fully refundable by the Treasury. Bankers say they that program could be depleted quickly.
“We anticipate more demand than supply,” said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, which represents SBA and other lenders.
“We’ve got to get lenders comfortable with the rules so that we know that when we originate a loan, counting on a government guarantee, that we’re doing the things necessary so that we actually have the government guarantee.”
He said that banks will take in applications on Friday, but it’s unclear how many can be approved. “They will process and close them after they know what the rules are.”
Reporting by David Lawder, Ann Saphir and Andy Sullivan; Editing by Daniel Wallis