- Banks and credit unions handling $349B loan program for small business earned $10B in fees
- Loan processing required less vetting by and less risks for banks
The $2.2T Coronavirus Aid, Relief, and Economic Security Act (CARES) initially provided $349B in government loans for small businesses. Under the umbrella and guarantee for the Small Business Administration (SBA), insured banks and credit unions essentially acted as middlemen, gathering and sending clients’ la applications to the SBA for the agency’s approval.
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Banks and credit unions as transition posts from the applicant to the SBA had little to do in terms of vetting and had little risk since the money for the loans was provided by taxpayers and guaranteed by the SBA. For all or as little as that, depending upon your perspective, banks earned $10B in fees.
Lenders earned processing fees based upon the balance of the financing outstanding at the time of the loans final disbursement. The SBA paid lenders for handling Paycheck Protection Program (PPP) loans per loan amount:
- 5% for loans of not more than $350,000
- 3% for loans of more than $350,00 and less than $2M
- 1% for loans of at least $2M
In an example given by National Public Radio (NPR), RCSH Operations LLC, the parent company of Ruth’s Chris Steak House, received a loan for $10M under the PPP loan program. JPMorgan Chase did the processing as the middleman agent and earned a $$100,000 one-time transition fee. Requirements for PPP loans are less stringent than regular loans and Chase assumed no risk for the loan.
Thanks to NPR.