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Banks brace for millions of small-business loan requests as Trump coronavirus plan is put to test

WASHINGTON — A crush of loan applications could swamp the Trump administration’s effort to speed money to cash-strapped small businesses, complicating hopes of keeping tens of millions of Americans employed during the coronavirus shutdown, according to lenders and analysts.

The administration is racing to get new ‘‘paycheck protection’’ loans approved in time to head off fresh layoffs by Main Street businesses at a time of soaring unemployment. In a notable departure, the Small Business Administration will delegate to the nation’s banks — including some of the perceived villains of the last financial crisis — authority to make $349 billion in new loans.


The program, part of the $2 trillion financial rescue legislation that President Trump signed on Friday, offers small businesses 100 percent government-guaranteed loans, which will be forgiven if the company retains the workforce it had before the pandemic.

Treasury Secretary Steven Mnuchin has promised a ‘‘very, very easy’’ process with banks starting to make loans on Friday, the first day applications can be submitted. But for the rapid-fire effort to succeed, the government must distribute in a matter of weeks more than 15 times as much money as the SBA issued through its main loan program in all of last year.

‘‘I can’t imagine, given the size of the program, that banks are going to be able to get this out as quickly as Treasury wants. But it’s the best option they have,’’ said Brian Gardner, managing director at the investment banking firm Keefe Bruyette & Woods.

With large swaths of the economy essentially closed by government edict, countless small companies are growing desperate for funds, even as many bankers say they lack the detailed guidance needed to administer the loans. Some lenders that are new to working with the SBA could struggle with staffing and software problems once they are approved to join the program in early April.


Paycheck protection is the cornerstone of the administration’s effort to avoid repeating the mistakes Washington made in responding to the 2008 financial crisis. Generous bank bailouts and only scattered aid for homeowners incited bipartisan populist anger for appearing to favor Wall Street over Main Street. This time, Trump officials want to make sure that the policy response is seen to benefit average Americans more than corporate elites — and that is focusing attention on the nation’s banks.

‘‘It’s really up to the banks to step up and get that cash to Main Street,’’ said Tom Sullivan, vice president of small-business policy for the US Chamber of Commerce.

Business owners across the country are besieging bankers for loan information. On Monday, the National Federation of Independent Business, an industry group, had 13,000 members join an online meeting about the program. If borrower demand exhausts the $349 billion, the administration will ask Congress for more, Mnuchin has said.

‘‘We’re inundated with everything from hairdressers to hardware stores to multimillion-dollar businesses,’’ said Cynthia Blankenship, corporate president of Bank of the West. ‘‘We expect to be flooded with requests, and we’re seeing that already.’’

The Grapevine, Texas-based lender has fielded calls from about 50 of its small-business clients asking to delay loan payments during the shutdown.

‘‘There’s a real desire to get it done, but the problem is, it isn’t as easy as it looks,’’ Blankenship said of the paycheck program, adding that verifying even the stripped-down paperwork could take time. Some banks may be turned off by the 0.5 percent interest rate that the standardized loans will carry, she said.


To arrest the economy’s slide, the paycheck aid must move faster than typical government programs, officials said. One-quarter of the nation’s small businesses can survive just 13 days before exhausting their cash reserves, according to a 2016 JPMorgan Chase Institute study.

‘‘These programs don’t do any good for Americans three or four months from now,’’ Mnuchin told Fox Business on Monday.

Administration officials said they had streamlined the loan application process by abandoning the SBA’s customary requirement for borrowers to post collateral or offer a personal guarantee. Companies with fewer than 500 workers are eligible to participate and can apply by completing a two-page form, which is available at sba.gov.

The banks will not be expected to assess a borrower’s ability to repay the loan, only to establish that the business was operational on Feb. 15, said the officials, who briefed reporters on the condition that they not be identified by name.

The SBA’s only role will be to verify that the borrower has not already received a paycheck loan, leaving the approval, disbursement, and servicing of the transaction to the financial institutions.

One senior administration official said the banks are bracing for ‘‘millions of applications’’ on Friday.

‘‘It’s going to depend on the banks,’’ said a second official, who added that loans could be approved ‘‘almost in real time.’’

The administration is trying to move quickly as parts of the economy crumble. On Tuesday, Goldman Sachs cut its forecast, saying the economy will shrink in the second quarter at an annualized 34 percent rate before rebounding. Unemployment will spike to 15 percent by midyear, the bank’s economists wrote in a client note, up from 3.5 percent in February. In comparison, the jobless rate reached 10 percent during the depths of the Great Recession in October 2009.