Companies that take advantage of the program have to make “commercially reasonable efforts” to retain employees, but unlike the „paycheck protection” goal of the small business rescue, they don’t have to formally pledge to use the money for payroll. That decision, criticized by Democrats like Sen. Elizabeth Warren of Massachusetts, was made under the assumption that companies might need to use the money elsewhere to be in a position to pay back the loan.
The Fed and Treasury previously expanded eligibility for the program, after asking for feedback during the initial rollout. About 30,000 businesses now meet the workforce and revenue criteria for the loans, according to Treasury.
Powell last week held open the possibility that the program would be further broadened. The minimum is $500,000 for new loans, and the maximum is $200 million for expansions of existing loans. “I can imagine us expanding on either end,” he said.
Yet some potential borrowers and banks say there won’t be a rush to take advantage of the program as it’s structured today.
Rep. French Hill (R-Ark.), a former banker and Treasury official who now serves on Congress’s coronavirus oversight panel, said he has heard feedback from midsize businesses indicating the program wouldn’t work for them. The terms of the loans may not fit some of the businesses that are hurting the most, including hotels and larger restaurant chains, he said.
Warner, a member of the Senate Banking Committee, has called on the Fed and Treasury to ease the terms, including the interest rate. He argues that Treasury should be more willing to lose money on the program.
“I think the secretary gets that, but I also think he wants to make sure that he gets clearer signs from Congress that was our intent,” Warner said.
A senior Treasury official told POLITICO that the government’s losses on these loans will depend on how the economic situation unfolds. Under certain severe scenarios contemplated by the department, Treasury could lose most or all of the $75 billion that it’s contributing to the program.
Lenders are already trying to downplay expectations. Even though banks will only carry a small portion of the loan on their books, they warn that the loans still carry the risk of borrowers defaulting, making underwriting a significant hurdle, and that there is only a small pool of likely borrowers. Some fear they’ll be vilified if they don’t approve enough loans.
„The way this is currently structured, we don’t think there’s going to be a huge amount of loans underwritten and a lot of money flowing out to the economy,” said Lauren Anderson, senior vice president and associate general counsel at the Bank Policy Institute, which represents the country’s largest lenders.
Reluctance by lenders to offer the loans is a top concern for the National Association of Manufacturers, which says there is a “huge appetite” among its members for the program.
“We just want to make sure that lenders are participating and money is flowing out into the system,” said Chris Netram, the group’s vice president of tax and domestic economic policy.
The Fed and Treasury are encouraging banks to extend credit beyond loans they would normally make. For example, lenders will be compensated for routine management of the loans based on the entire value of the financing, not just the portion they own.
The senior Treasury official also said the department would be open to tweaking the program if few companies are interested but said there’s no reason to adjust the loan terms if demand is low just because companies don’t want to take on more debt.
And if banks are proceeding with caution, that may not be a problem either for those running the program.
“If a bank is not willing to even lend 5 percent of a loan to help the company through this, that’s a very strong indication that this company is not a viable company,” the Treasury official said. “And we don’t want to be making loans to bankrupt companies.”
Source: politico.com
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