The Paycheck Protection Program (PPP), one of the elements of the CARES Act designed to help the US SME sector that has been demolished by the COVID-19 pandemic, has been lauded in its intent but criticized in its execution. Confusion continues as banks struggle to distribute the funds that are designed to provide payroll support to small businesses that have been told to close by the government.
The PPP provides payroll funding by delivering a forgivable loan of 2.5X monthly payroll so companies do not have to lay off employees. While expensive, the cost is estimated to be far lower than the cost of unemployment and seeing people without a job. The government is attempting to get the money out as quickly as possible but many lenders have struggled to do so as confusion is rampant and friction to the process is high. This is not to mention the antiquated SBA technology that was not designed to quickly process these types of transactions.
An example of the rush job is highlighted by FinCEN’s recent FAQ on PPP clearly engendered by questions by lenders (ie Banks).
FinCEN, part of the US Department of Treasury, issued the FAQ on Monday, April 13, 2020, explaining lending requirements under the Bank Secrecy Act (BSA) and how lenders can meet those requirements. For example, if the PPP loan is being made to an existing customer and the necessary information was previously verified, you do not need to re-verify the information. These are emblematic as to some of the questions banks are asking.
While top line numbers have been touted as to how much in PPP lending has been made to date, chatter is that little if any of this money has made to these small businesses. If the banks fail to get the money out quickly, the program could end up being viewed as a failure, too little-too late, instead of the support plan it was intended to be.
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