Categories: SMBs

Banks Will See Windfall From SMB $350B COVID-19 Bailout

Financial institutions stand to make billions from the $350 billion coronavirus bailout package for small and medium-sized businesses (SMBs), according to a Financial Times (FT) report on Tuesday (March 31).

The $2 trillion stimulus bill was passed on Friday (March 29) and announced that the Small Business Administration (SBA) will extend loans through banks and credit unions to SMBs crippled by the coronavirus and employing fewer than 500 people.

Lenders will reap the benefits of processing fees —  5 percent for loans under $350,000, 3 percent for loans under $2 million, and 1 percent for loans greater than $2 million. The fees will be covered by the federal government.

The loan will be forgiven if small businesses use the funds for payroll, mortgage interest, rent or utilities. If the business lays off people or reduces paychecks, less of the loan will be forgiven.

Businesses can take out loans up to $10 million that are equal to 2.5 times their average monthly payroll.

“Speed is the operative word,” said Jovita Carranza, administrator for the SBA. “Applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans.”

The SBA said there are 30 million SMBs with fewer than 500 employees in the U.S., employing almost 50 percent of the private workforce, some 60 million workers. The advocacy group National Federation of Independent Business indicate that roughly 75 percent of its members have been negatively affected in some way due to the COVID-19 pandemic.

Claudia Sahm, a former research section chief at the Federal Reserve, told FT that incentivizing banks with fees helps the SBA’s “limited capacity.” Millions of applications are anticipated.

A debt trap may loom for the smaller businesses that desperately, and immediately, need access to capital.

The impact will be most keenly felt by the businesses that rely on crowds, on foot traffic, to drive sales and profits. These are the same firms that have been shuttered across several states — barbershops, restaurants, gyms and nightclubs.

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The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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