5 Reasons Why the PPP Frightens Banks

I have invested over 120 hours of research, participated & spoken in Zoom panels, and engaged with client strategy conversations on the PPP since Friday, March 27th- that is the same day the Payment Protection Program (PPP) was signed by President Trump.  The Triple P is a sweet deal for many struggling business owners; however, not so good for banks, here’s why:

1. The loan rate is too low:  PPP loans will stay on the bank’s books at 1%, which is much less than their conventional loans.
2. Astronomical default risk: So many people are already tapped out or about to be on empty so banks know many of these loans will default.
3. Unfit system technology: Most banks are not set up system-wise for this technology, so there’s a mad scramble to set up systems/websites, whereas other institutions have the same platform already in daily use.  It’s expensive to build out an internet platform in 4 days.
4. Margins are too low: Currently, the Federal Funds rate is 0.25% This is the rate banks lend to each other overnight.  The PPP is only 75 basis points higher, which leads to poor profit margins.
5. Beholden to the Government: Banks are complaining about mixed messages from the Government and are dragging their feet until they receive more information and direction.

     If you are in desperate need of money now, I suggest going to the smallest local community bank, where you have an account (or open up a new account) in your area, as they have been the most aggressive.  Be Safe!