Citigroup CEO Michael Corbat said the bank is “working around the clock” to develop its own online portal for the Small Business Administration’s (SBA) $350 billion Paycheck Protection Program, CNBC reports.
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Corbat noted that Citi is ensuring it has the digital interface set up so that people can apply online, and the bank can get the documentation it needs for the vast majority of these loans, in order to “get this money into small businesses’ hands as quickly as it can.” Loan applications — which ask for basic business information like payroll and number of employees — open today.
Banks are being paid to facilitate loans on behalf of the SBA and are expected to bring in billions from government fees as a result. As we discussed yesterday, the SBA’s $350 billion is being extended through banks and credit unions to small businesses with under 500 employees as part of the government’s $2 trillion stimulus package.
The funding is intended to help businesses avoid layoffs and will be forgiven for those that use the full amount for payroll, mortgage interest, rent, or utilities within two months of receiving the money. To incentivize them to facilitate the loans, the government will pay banks a fee ranging from 5% for a loan under $350,000 to 1% for a loan over $2 million.
As banks prepare to accommodate a massive volume of applicants, there are several areas of friction that they will need to navigate quickly.
Banks could be overwhelmed with applicants, though dedicated portals like Citi’s could prove effective in mitigating this. Over three-quarters (76%) of small businesses are being negatively affected by the coronavirus, suggesting high demand for these loans. And of the 20% of businesses not currently affected, 77% anticipate that will change if the coronavirus outbreak spreads more broadly in the next three months. Prior to the stimulus bill being passed, the SBA saw 20,000 to 30,000 daily calls from small businesses — a number which has likely grown drastically since and will continue to as the pandemic endures.
The Trump administration said it’s working to ensure the SBA’s systems can handle the volume and will add a backup system. Banks should similarly work quickly to ensure that their own systems can handle a high influx of inquiries — though likely resource-intensive, building a dedicated portal as Citi has could reduce the chances that an applicant encounters an overloaded system, and it could ultimately help get loans out to businesses more quickly.
Potential delays in fund disbursements could reflect poorly on banks. Expectations will be high from both customers and the government around how quickly banks can distribute loans to businesses in need. And although the funds are ultimately coming from the SBA, banks will receive the brunt of backlash from any businesses left waiting, since they are the ones that will actually be dealing with applicants.
This makes it imperative that banks keep open lines of communications with customers, are transparent about the process for applying for a loan, and set realistic expectations around when the funds can be expected.
Despite efforts like Citi’s to smooth the lending process for small businesses, banks are in uncharted territory, and a lack of clarity will inevitably create confusion as the program gets off the ground. Unanswered questions from the SBA and Treasury Department could cause complications as banks try to accommodate the anticipated onslaught of borrowers: For example, it’s unclear how much due diligence lenders are required to do of borrowers. This could make for a challenging few weeks as banks begin carrying out this unprecedented relief effort.
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