Many major companies got massive loans from a “small business bailout” approved by the Senate while thousands of small businesses were told after applying that there was no money left. This comes into question then as who is to blame for this.
Amid a crumbling economy and intense lobbying campaign, it was vague and pretty unclear how banks are to treat applicants before sending in requests to the Small Business Administration. Because of this, banks are able to pick winners and losers based on incentives, previous relationships, existing debts, and earning profit.
For example, a series of class-action lawsuits were filed in Los Angeles regarding four banks. Wells Fargo, Bank of America, JPMorgan Chase, and US Bancorp rushed loans to the biggest businesses to maximize their earnings while smaller loans were pushed to the back of the line.
Bankers claim that not all loans are equal and that the appearance of different treatments are simply a result of different divisions working at different speeds with different client loads. It was reported after that $300 million went to companies traded on the stock exchange – not exactly mom and pop businesses.
This will then get Congress working on now choosing banks for the unprecedented government bailout. Then we’ll see, under pressure from time, lobbyists fail to set strict parameters for not having allowed small businesses any legal recourse for how their fates are dealt out.
Banks were never the ideal route for the Paycheck Protection Program, but they were chosen as they are already in the business of making loans. Clearly, not all banks are the same. There are smaller community banks who have a strong interest in the economic health in their communities, and then there are the larger banks who might not have the same push and incentives for smaller partners.
Some, for example, are incentivized to send out low-interest loans to funnel taxpayer money while others are seeking those clients they already have a history with in terms of owing money, checking accounts, saving accounts, etc. Banks are doing all they can to reduce their exposure to loss and still earn profit. Holding banks reliable though isn’t necessarily a careful strategy either. This could frighten them into participating which would undermine Congress’s goal to maximize relief for America’s small businesses.
“It really boiled down to how fast can you get money out the door,” a Senate Republican states. “If you had all the time in the world, there is probably a better system. Insurance companies have never done anything like this, and if the Treasury were to take applications for the air, it would have to develop a process to do so. It would face the same challenges as SBA, but in addition it would not have the muscle memory of loan approvals. Remember, SBA approved 14 years worth of loans in less than two weeks.”
It is up to the Senate to reel in the guilty banks and ensure that our debt serves those Americans who need it the most.