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Thursday, May 7, 2020

PPP Program

From the moment I started learning about the PPP program, it was clear to anyone with real ear-to-the-ground positioning, this program was going to be a shit show.  The lack of complexity, speed, universal coverage were all elements that were going to make the program unstable.  Lending is a disciplined art, and this was like free-love mud-based body art.  Like I said a few weeks ago, small community banks succeeded in getting this money on the street quickly, and from the start I was concerned about a president who spent his life screwing banks now responsible for the health of small banks.

First, by design, the loans were available to any business that could attest to harm.  Very few businesses have not been harmed - it didn't say harmed 'a lot', or 'seriously harmed' or 'reporting less profit', or qualifying it in anyway.  The application was straight-forward.

2nd, it was clear that businesses of any size that were eligible AND had active banking relationships were going to get this money first.  I deal with my bankers everyday.  I knew who to call.  Also, I had great records and book-keeping, once again attesting to the fact that good books is the fundamental foundation of any business for a myriad of reasons.

3rd, the parameters of the loan - spend it in 8 weeks and spend 75% on payroll - makes sense in theory but not in reality.  Why would a restaurant keep employees when they are not allowed to be open?  The money is better used paying the bills due, so when the time comes to reopen, credit is good, and payables are manageable.  A horse stable with 20 horses will have more expense in horse feed and rent than payroll.  And why 8 weeks?  What happens then?  Artificially keeping employees to get a loan to pay for them?  Not the most sensical approach to self-preservation.  Many businesses will benefit, but as many will just be kicking the can down the road.

4th, the rules are changing, daily, with some weird 'self-policing' of who is and isn't supposed to get this money.

5th, the community banks who made these loans for very little money, did it because that's what they do - help communities - worked 24/7 to get money out the door, are now being told maybe they are responsible for auditing loans, for knowing 'who should have gotten money', and that even they may be responsible for bad loans, now that is absolutely crazy.  Any one who touches or impacts the health of community banks - who already are calculating their exposure in their small business loan portfolio - is creating a disaster of absolute epic proportions, since it's these banks that keep America running and make most of the very small loans that small businesses need - loans that are made based on character as much as credit history.  I know - I'm that story to a T.

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