Do banks have a role to play in SBA's coronavirus loan program?

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President Trump’s plan to equip the Small Business Administration to make $50 billion in low-interest loans to small businesses hurt by the coronavirus outbreak raises the agency's already high profile in the federal response to the pandemic.

What’s less clear is the role banks and credit unions that dominate the SBA’s 7(a) and 504 lending programs might play. A total of $7 billion authorized last week as part an $8.3 billion emergency spending package, will be distributed through the SBA’s disaster-relief program. Congress is working to hammer out the details of how the $50 billion President Trump announced Wednesday will be allocated.

“Congress is still discussing a role for SBA to play through its lending partners,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders. “It’s too soon to know what that might look like, but it could be along the lines of the American Recovery Act.”

Sen. Marco Rubio, R-Fla., chairman of the Senate Small Business and Entrepreneurship Committee, said he is working on legislation that would include a role for community banks.

“We want to take the commitment the president made last night and funnel it through our 7(a) program and community banks,” Rubio said Thursday at a hearing in Washington. “They are in the community. They have the ability to process the paper on this.”

The SBA did not immediately respond to a request for comment.

Signed into law by President Barack Obama at the height of the financial crisis in February 2009, the American Recovery Act reduced fees and increased the guarantees the SBA offered through its regular loan programs. It sparked a 30% increase in program activity as gross loan amounts approved jumped to $16.8 billion in the 2010 fiscal year from the prior year’s $13 billion.

An empty restaurant is seen in New Rochelle, a New York City suburb that has been hit hard by the coronavirus outbreak.

In this new crisis, the spotlight so far has been on SBA’s disaster relief program. The agency disclosed Thursday that it will make disaster relief funding available to areas impacted by coronavirus once it receives a request from the governor of the state or territory. It will provide loans of up to $2 million at an interest rate of 3.75% to small businesses and 2.75% to nonprofit organizations.

While 7(a) and 504 loans are originated by banks, credit unions and other SBA-approved lenders, disaster relief loans are made directly by the agency.

The money Congress and the Trump administration have earmarked for disaster relief funding represents an unprecedented challenge for SBA. The agency’s disaster relief lending totaled $12.7 billion for the five-year period that ended on Sept. 30.

After natural disasters such as hurricanes, the SBA has had to open local offices and hire staff to process applications.

Read more: Complete coverage of the coronavirus impact

“It does take time to ramp things up,” James Ballentine, the American Bankers Association’s executive vice president of congressional relations and political affairs, said in an interview before Trump's announcement.

It’s unclear how the SBA would disburse coronavirus relief funds, given the emergency's nationwide scope.

"I believe the SBA can probably handle it, particularly if banks are involved in the process," said William Isaac, a former chairman of the Federal Deposit Insurance Corp. "This will require a cooperative effort."

Banks and credit unions, meanwhile, have played little or no role in disaster relief lending.

A pilot program authorized in October 2016 gave lenders authority to make loans of up to $25,000 to small businesses impacted by disasters, but it’s seen little use. According to a Feb. 7 report by the Government Accountability Office, the SBA has received a total of 93 applications under its Express Bridge Loan Program, approving two loans totaling $50,000.

Under Express Bridge Loan, lenders participating in the agency’s SBA Express program can make $25,000 loans to existing small-business customers affected by disasters. The program features a streamlined application process and a 50% guarantee, but the GAO pointed to shortcomings in the agency’s marketing.

“SBA generally has not targeted its outreach for the program to disaster-prone areas," the GAO report said.

While increased funding could help boost confidence in the economy and the government’s response to the crisis, the overall impact might be limited, said Robert Johnson, a finance professor at Creighton University.

“The problem with coronavirus is not the lack of lending or liquidity, but that there is a dramatic current and future demand-side reduction,” Johnson said.

Ken McCarthy contributed to this article.

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