PPP Loans Could Be Boon For Banks In Processing Fees

Paycheck Protection Program

Banks arranging government loans intended for businesses hurt by the pandemic could reap as much as $24 billion in associated fees, The Wall Street Journal (WSJ) reported Tuesday (July 7).

The publication based the report on research by Edwin Hu of New York University School of Law’s Institute for Corporate Governance & Finance and Colleen Honigsberg of Stanford Law School. Their data shows that more than 4,000 financial institutions (FIs) could reap a total of anywhere from $14.3 billion to $24.6 billion in processing fees for the Paycheck Protection Program (PPP) loans.

The $24 billion figure is the high end of estimates based on the fees — between 1 percent for the largest loans and 5 percent for the smallest — that banks earn for administering the loans.

Borrowers generally are required to repay the loans unless they use them to preserve jobs long term.

The federal Small Business Administration (SBA) reported Monday (July 6) that 5,461 lenders arranged 4,855,388 loans totaling $521 billion as of June 30. Two-thirds of the loans were for $50,000 or less. Less than 2 percent were for $1 million or more.

Traditional banks accounted for 4,273 of the lenders, which arranged 4,409,646 loans totaling $496.7 billion. Some 21 lenders were listed as being in the “FinTech and other state-regulated lenders” space and arranged 166,494 loans totaling $4.7 billion.

J.P. Morgan Chase and Bank of America, the country’s two largest banks, distributed more loans that any other lenders, WSJ reported.

“J.P. Morgan customers received $29 billion in PPP loans and the bank stands to get between $800 million and $1.38 billion in fees, according to the analysis,” WSJ reported. “Bank of America customers received $25 billion in loans, and the bank is in line for $770 million to $1.21 billion in fees.”

A new S&P Global Market Intelligence report noted that with profits for the banks comes risk, including in some cases class-action litigation dealing with the banks’ administration of PPP loans.

As of July 6, $132 billion remained available for borrowing, according the federal Department of the Treasury. Because of a deadline extension, potential borrowers have until Aug. 8 to apply for loans.