When Congress says it is working to secure more money for small business loans because the first tranche ran out of it, there’s an interesting angle here that hasn’t really been covered.
We’ve been covering the inability of a lot of small businesses to get the money. However, some hedge funds are posing as small businesses as well, because technically, they have less than 500 employees.
Yet, they still make fee income, and they shouldn’t really qualify for this program, which was attended from mom-and-pop court shops and salons or people with real need with no income coming.
Here’s another interesting side aspect of the PPP program as it knows the payroll protection program that’s supposed to give loans to small businesses.
As you know, it’s administered by the banks, you apply through them, and then you get your check. Obviously, they’ve run out of the first three hundred fifty million.
But here’s what the banks are worried about in terms of this program. They say there’s been so very little guidance from the Treasury – just broad-base mandates. You basically go out there and hand checks to anybody with less than 500 employees that qualify as a small business.
Sources at the major Wall Street banks like Bank of America, Citigroup are telling that they’re worried about a significant legal liability when this is all over.
Why is that?
They’re worried about being sued for not doing enough due diligence on the loans. They’re also worried about discrimination or maybe racial discrimination. The way it was posed is the reason why they’ve been so by-the-book and handing out these loans first-serve and best customers.
If you have a credit card and a checking account, you are a better customer than if you have a credit card or a line of credit with the bank.
They are worried about racial discrimination because someone said you didn’t give enough loans to women-own companies or African-American companies.
So what they want is when is prioritizing these loans to say – we had to do this based on the best way we were told from the federal government. This is not an absurd worry. After the financial crisis in 2008, JPMorgan was sued a lot. If you are a stockholder in the big banks, it’s something you should look at going forward.
Obviously, it’s early in the game but definitely something to look at. This is something that the legal staff is worried about inside the big banks.