I spoke with a friend who works for Bank of America in the private banking division. I shared with him some of the comments I was hearing about the process of applying with the Banks and specifically Bank of America. For the first part of the first day, only Bank of America was open for these applications to be received. The rest of the banks are expected to be coming online probably Monday or within a few days. There have been reports of BofA customers who have personal loans or personal accounts being turned away and their applications being rejected. There are a lot of angry Doctors who have money with BofA personally, both through Checking and Savings accounts as well as home loans and they are getting rejected. You needed to have a Business relationship and a business loan or business credit card in order to submit your application.
He explained to me that the criteria for having a business account and a Business loan or a Business credit card with BofA is because there is a certain level of compliance there with regards to lending. The banks who have a lending relationship with their customers have been scrutinized, to some degree, the source of their funds and that there is less likely to be money laundering with those clients. So naturally they are going to start with the customers who have been vetted. There were many who felt that Bank of America was catering to their better customers, but it does not sound like that is the case, although there will probably be some of that, but it is more of a function of who they can clear first and vet first.
As the day wore on and under an avalanche of outrage from customers, B of A caved and is now allowing clients to submit their applications without the same restrictions.
Also, the SBA was still providing guidance to the Banks as late as Thursday at 7:30pm, the night before the banks were to roll this out. By the end of the day today, 3/3/2020, B of A will probably have close to $10B in loan requests, just in the first day for one large national bank. That means another $340B to go, assuming all of the submitted applications qualify of course. Keep in mind that this program is a first come first served basis. Once the money is gone and allocated, that may be it, unless another round of funding becomes available. They are going to need some time to sift through these and they have not even opened up yet to Independent Contractors and individuals, which are scheduled for the 10th of April. I heard they will be working through the weekend on these applications.
I skimmed through that 30 page document that the banks received the night before the rollout. A couple of interesting notes. https://home.treasury.gov/system/files/136/PPP--IFRN%20FINAL.pdf
1. The interest rate for the borrowers is 1% for loans under $350k. SBA feels that a 24 month CD would pay the banks .35% so the lenders getting 1% should be sufficient to entice them to lend.
2. The lender, gets a 5% fee from SBA, not from the borrower. That is a $15,000 commission on a loan of $300,000
3. The agent gets up to 1% taken from the 5%.
4. The borrower is not to pay any fees for origination or yearly fee. The lender is deemed to have received enough by getting 5%.
5. The lenders can package these and sell them on the secondary market.
My own opinion, the Banks are going to make a ton on this. You will have more clients opening accounts or opening a credit card or credit line, those will help the banks without a doubt, they also get a very healthy 5% commission on loans under $350k and less of a commission on larger loans. The banks always seem to be well positioned when these packages come around….
But all in all, if this program offers relief to the Physicians we service, it is a good thing and potentially a great thing for so many who have or will have suffered through this pandemic.
Jeff C. Robertson, CMPE